While domestic cement demand has been declining year by year, cement prices have been unable to rise to reflect rising costs. In response, during the 23 Medium-Term Management Plan period, we implemented a total price increase of 5,000 yen/tonne to cope with the unprecedented soaring coal prices and transportation costs associated with the spread of COVID-19 after 2020, the invasion of Ukraine in 2022, and natural disasters in Australia. However, we were unable to fully offset the high manufacturing costs, and the domestic cement business continued to operate in the red. Furthermore, against the backdrop of the difficult situation of the domestic cement business, which is our main business, we were unfortunately unable to achieve the ROE and profit margin targets of the 23 Medium-Term Management Plan. In the first place, we believe that it is not a sustainable business if we cannot cover the costs of maintaining and renewing domestic manufacturing and transportation facilities and sales expenses with the profits from domestic business. Our cement plants contribute to a recyclingbased society by using waste as alternative raw material and fuel for cement production, and since it is challenging to relocate production facilities, we need to secure maintenance costs. In addition, production facilities have aged due to long-term use, and securing funds for facility renewal is also an issue. Furthermore, since social demands, such as carbon neutrality, are gradually becoming wider in scope, it is also necessary to make capital expenditures to respond to these demands.
Therefore, in the 26 Medium-Term Management Plan, we decided to fundamentally review our cement pricing policy and improve our profit structure. Specifically, we will implement various measures to shift from an emphasis on market share to an emphasis on profitability, reflect cost increases in prices in a timely manner, and optimize prices in light of investment costs to meet various social demands.
Traditionally, we have assigned sales representatives for each segment to handle customer inquiries. However, while this system has advantages in terms of acquiring and utilizing specialized knowledge and customer information by the sales representatives, it also incurs high monetary costs due to the duplication of sales resources. Furthermore, there is a problem from the perspective of decrease in the working population.
Therefore, as a measure during the 26 Medium-Term Management Plan period, we have decided to aim for multiple business assignments for sales representatives without compromising the advantages of the current system by improving collaboration between business divisions and utilizing IT technology in sales (Sales DX). This will not only reduce costs by streamlining the sales structure, but also enable us to provide comprehensive support to solve users' challenges.
Domestic cement demand is decreasing year by year, so the operation rate of cement production is also declining. Since both variable costs and fixed costs per tonne of cement decrease with continuous operation and stable production, we will maintain the operation rate by expanding the production and export of blended cement, which is in high demand overseas.
In addition, we have been actively engaged in technological development to expand the use of waste as an alternative fuel for cement production and to expand the treatment of waste that is difficult to handle, in order to reduce raw material and fuel costs and maximize revenue from waste treatment fees. In this Medium-Term Management Plan, we aim to further reduce raw material and fuel costs and maximize waste treatment fee revenue by expanding the use of fuel-based waste and expanding the use of sewage sludge as a cement raw material by expanding the introduction of sewage sludge pretreatment facilities, thereby reducing the manufacturing cost of domestic cement.
Similarly, we also aim to implement these measures, such as reducing electric power costs by replacing clinker cooling equipment with the latest models, and reducing fuel costs by replacing coal with methane as fuel for in-house power generation.
These measures will contribute to a recycling-based society and the reduction of greenhouse gases, but they will also contribute to reducing our costs.
