Komatsu Ltd S/Adr

Thank you. I am Horiko Shi, the CFO. Let me present the business results for FY2024. Page 4 shows the highlights of FY2024 business results. Exchange rates were ¥152.8 to the dollar, ¥163.5 to the euro, ¥99.5 to the Australian dollar. Yen has weakened against these three currencies year on year. Net sales grew 6.2% year-on-year to 4,104.4 billion yen. Operating income grew 8.2% to 655.1 billion yen. Operating income ratio went up by 0.3 points to 16%. Positive FX impact, improved selling prices, and others led to higher sales and profits. Net income increased by 11.7% and reached 439.6 billion yen. Net sales, segment profit, profit ratio, and operating income and its ratio, net income, all of them were record high numbers. Also, net sales, segment profit, operating income, and net income were record high three years in a row since FY2022. ROE increased by 0.1 point year-on-year to 14.2%. We plan to increase the dividend per share for FY24 from 167 yen per share that we announced in October to 190 yen. Consolidated payout ratio will be 40.1%. Including the 100 billion share buyback that we implemented in 2024, the total shareholder return will be 62.7%. Page 5 shows the net sales of construction, mining, and utility equipment. The sales were 3,798.2 bn up 5.1% year-on-year. Segment profit was 598.9 bn up 4.3% year-on-year. The retail finance net sales were 123.2 bn up 19% year-on-year. Segment profit was 29.4 bn up 21.4% year-on-year. Net sales of the industrial machinery and others were ¥223.6 billion, up 14.3% year-on-year. Segment profit grew about 2.7 times year-on-year to ¥27.4 billion. I will explain the causes of the differences by segment later on. Page 6 shows the net sales of construction mining utility equipment by region. Net sales were ¥3,787.5 billion, up 5.5% year-on-year. Excluding FX impact, the overall number slightly increased year-on-year. By region, Oceania and Asia net sales increased in real terms excluding FX impact, but declined in North and Latin America and Africa. Page 7 shows the causes of the differences for construction, mining, and utility equipment, showing the net sales and segment profit. Negative impact of the lower volume was more than offset by the positive impact of the weaker yen and improved selling prices. Net sales increased by 183.1 billion yen year-on-year. The positive impact of the weaker yen and improved selling prices was bigger than the negative impact of lower volume and higher costs. Segment profit grew by 24.9 billion yen year-on-year. Segment profit ratio was 15.8%, 0.1 point lower than the year before. Page 8 shows the retail finance. Assets increased from previous fiscal year end mainly with the increase in new contracts. New contracts grew mainly due to the yen's depreciation. With rise of the interest income ratio, the positive impact of the weaker yen, increase of the financing receivables and others, net sales grew by ¥19.7 billion year-on-year. Segment profit grew by ¥5.2 billion year-on-year. Page 9 shows the net sales and segment profit of industrial machinery and others. Net sales were 223.6 bn yen, up 14.3% year-on-year. Segment profit was 27.4 bn yen, about 2.7 times that of the year before. Segment profit increased by 7.0 to 12.3%. As for sales and segment profit, For the presses, sheet metal machines, and machine tools for the automobile industry, sales segment profit increased mainly due to higher sales of large press machines and machine tools. And for the semiconductor industry, sales profit increased with the recovery in the maintenance revenue of Exima lasers. Page 10 shows the consolidated balance sheet and free cash flows. Total assets increased by 136.9 billion yen from the previous year end to 5,773.5 billion yen. Inventories decreased by 32 billion yen from the previous fiscal year, mainly due to the higher account receivables. to 1 trillion 406.7 billion yen. Shareholder's equity ratio was 55% up 1.2 point. Free cash flow increased by 76.1 billion yen year-on-year to 306.5 billion yen. Page 11 shows the status of the achievements of management targets of the mid-term management plan. The management targets of the previous mid-term plan for FY22-24 were largely achieved. In FY2024, despite lower volume, higher raw materials costs, and fixed costs, selling prices were improved. With weaker yen and effects of degrowth strategy and structural reform, sales and profit increased year on year. Both net sales and operating income were record high three years in a row from 22 to 24. As for the profitability, in FY24, the operating income ratio was 16%, 0.3 points improvement year-on-year, and the record high. As for the efficiency, ROE was 14.2%, exceeding the target of 10%. Shareholders' return, the consolidated payout ratio of 40% or higher was maintained. External evaluation of the ESG, We were selected to the Dow Jones Best in Class World Index, and we made CDP-A list in climate change and water security. As for CO2 emission reduction and the increase of the renewable energy use, we made steady progress toward 2030 targets. As for the retail finance, ROE, net debt equity ratio, we achieved the targets. That concludes my part of presentation. Next, for the projection for FY25, Mr. Hishinuma will present. Thank you. I am General Manager of the Business Coordination Department. I'd like to now present the projection for FY25 and condition of the major markets. Page 13 shows the projection for FY2025. FX Assumptions 135 yen to the USD, 150 yen to the EUR, and 84 yen to the AUD. Net sales projection 3,745,000,000 down 8.8% year-on-year. Operating income 478,000,000,000 down 27.3% year-on-year. Net income projection is 309 billion yen, down 29.7% year-on-year. At the BOD today, we resolved the share buyback up to 100 billion yen or 40 million shares and cancellation of the old acquired shares within FY25. FY25 ROE is expected to be 10%. As for the dividend per share, we plan to pay 190 yen, same as the year before. Consolidated payout ratio, 56.7%. And total shareholder return, including the 100 billion yen share buyback that we announced today, will be 89%. Page 14 shows for the construction mining and utility equipment. Sales projection is 3 trillion and 440 billion yen down 9.4% year-on-year. Segment profit 428 billion yen down 28.5%. Retail finance sales projection is 107.5 billion yen down 12.8% year-on-year. Segment profit 24 billion yen down 18.4%. For industrial machinery and others, sales projection is 231.5 billion yen up 3.5% year-on-year. Segment profit projection is 31 billion yen up 13.2% year-on-year. I will explain the causes of the difference by segment later on. To explain the impact of the US additional tariffs factored into the projection, page 15 shows the structure of our construction and mining business in the United States. Komatsu's export of products and parts from the United States is more than the import from overseas. So we are exporting company About 50% of the products sold in the United States are manufactured outside of the United States and imported mainly as finished construction equipment and parts. The other 50% are manufactured locally. Construction equipment are mainly supplied to the US and Canada and mining equipment are supplied worldwide. Among locally manufactured products, construction equipment has a high proportion of imported parts, while mining equipment has a high proportion of U.S.-made parts. Page 16 shows the impact of the additional U.S. tariffs factored into the projection for FY 2025 on sales and segment profit. Decline in demand, higher tariff costs, are incorporated into the projection. This is based on what we know as of April 24, Japan time. So, if the situation changes, we will revisit them. Page 17 shows the sales projection by region for construction, mining, and utility equipment. Sales will decrease in almost all regions due to the stronger yen. The total sales projection is 3 trillion and 430 billion yen, down 9.4% year-on-year. Excluding the impact of the forex, sales will increase in real terms in the regions except in North America, Oceania, and Asia, where there was a high volume of sales of mining equipment in FY2024. Page 18 shows the causes of the difference in projected sales and segment profit for FY 2025. Expected lower volume due to the additional U.S. tariffs can be offset by the improved selling prices. However, mainly because of the yen's appreciation, sales are expected to decline by 358.2 billion yen year-on-year. Expected lower volume tariff cost and higher fixed cost due to the impact of the U.S. additional tariffs will be partially offset by improvements of the selling price and cost, but due mainly to the stronger yen segment profit is expected to decrease by 1%. 170.29 billion yen year-on-year. Segment profit ratio projection is 12.4% down 3.4 point year-on-year. Page 19 is a retail finance projection. Assets in real terms excluding FX will slightly increase, but with yen's appreciation, assets are expected to decrease ¥72.3 billion from the previous fiscal year end. With yen's appreciation and absence of the large-scale project of the year before, new contracts projection is down by ¥192.9 billion year-on-year. Due mainly to the stronger yen, net sales are expected to decline by 15.7 billion yen. The segment profit is expected to decline by about 5.4 billion yen. ROI is expected to come down by 0.3 point year-on-year to 1.9%. Page 20 shows the sales and segment profit projection for industrial machinery and others. For concerning presses, sheet metal machines, and machine tools for the auto industry, sales will increase due to higher sales of the large press machines and services. For semiconductor industry, the sales will increase due to an increase of the sales primary in maintenance with the market recovery. Net sales projection is 231.5 billion yen, up 3.5% year-on-year. Segment profit, 31 billion yen, up 13.2% year-on-year.

Now I'll work you through the demand trends and forecasts for the seven major construction equipments on page 21. We revise the definition of demand for the seven major construction equipment. The demand for the seven major construction equipment in China and other regions have been retroactively adjusted to include the demand of Chinese manufacturers. The demand volume for the seven major construction equipment includes mining equipment, The figures for the fourth quarter of FY24 are our preliminary estimates. FY24 unit demand appears to have been almost flat year-on-year. We expect year-on-year decline in demand of ±0% to 5% in FY25. According to the Global Economic Outlook released by the IMF in April, GDP growth in each country is expected to slow down due to the impact of trade frictions. the overestimated impact on demand and factor it in. On the next page, I will give you an overview of our key markets. Page 22 shows the demand trend and forecasts for the North American market. The demand volume for AFI24 decreased 7% from the previous year. Due to a drop in housing starts and other factors, demand for construction equipment decreased in the rental and energy sectors. We estimate the demand in AFI25 will be down 5% to 10% versus the previous year's level. Demand for rental equipment is expected to continue to weaken. The impact of U.S. tariff policy on demand in the North American market is unclear, but we will continue to closely watch the developments. This page gives you demand trend and forecast for the European market in page 23. In A524, demand fell 19% from the previous year. Our key markets, Germany, the UK, and France saw less demand for construction equipment. Demand in A525 is expected to range from being stable to decline 5% year-over-year. Despite positive changes such as consecutive interest rate cuts by the ECB and Germany's massive fiscal expansion measures, business confidence in the region remains sluggish. Therefore, we closely monitor the situation. Page 24 shows the demand trend and forecast for the Southeast Asia market. The unit demand in AFI24 increased by 2% year-on-year. Our largest market in the region, Indonesia, has recovered demand for construction equipment since the second quarter of A524 and beat the previous year's level for the four-year performance. The regional demand except Indonesia was almost on a par with the previous year. In a mining equipment market, demand in Indonesia remained strong. Its demand in A525 is expected to range from being stable to decline by 5%. In Indonesia, coal price has been slowly declining, but we expect a recovery due to power generation demand during the summer season. Back in last October, following the presidential election, demand for construction equipment recovered, and we expect the level to be consistent in the current fiscal year. Page 25 now indicates how Japan market will trend in demand and our outlook. FI24 demand dropped 7% year-on-year, primarily due to a decrease in demand for rental equipment. We expect this demand for FI25 to be ±0% to fall by 5%. Page 26 shows a trend in its outlook for prices of key minerals as it's related to demand for mining equipment. The key mineral prices have remained high over the long term, though it's been widely fluctuating recently due to UBS tire policy and moves in demand. On this page 27, it highlights the demand trend for mining equipment. The number of units in demand in FI24 appears to have been almost the same as the previous year. Demand remained firm overall, although it decreased in North America, Indonesia, and other regions. FI25 demand is expected to range from being stable to fall 5% from the previous year's level. We expect the demand in North America and Oceania to decrease, but are expected to remain firm overall. In page 28, here are mining equipment sales. In FY24, sales increased 12% year-on-year to ¥1,916.2 billion. Excluding impact of FX impact, sales would have increased 6%. Net sales for FY25 are projected to be ¥1,727.9 billion, a decrease of 10% from the previous year. Excluding FX impact, sales are expected to increase. On page 29, you see the forecast of sales of a construction, mining, and utility equipment segment with equipment, parts, and services. In FY2024, parts sales are expected to increase 8% year-over-year to 1 trillion and 51.4 billion yen, and overall aftermarket including services is expected to be 51% of total aftermarket sales, and its sales were up 2% year-over-year excluding FX impact. In FY25, part sales are expected to decrease 6% from the previous year to 987 billion yen. Aftermarket sales portion including service and others are estimated 53%. And overall aftermarket sales excluding FX impact are expected to increase 4% year-on-year. Here on page 30. is our outlook on capital expenditures and others. Capital investment excluding investment in rental assets on the left-hand side is expected to remain flat year-on-year primarily due to continued investment in production facilities, sales offices, and solution businesses. R&D expenses in the middle are expected to increase from the previous year primarily due to focused investments in electrification and automation and others. Fixed costs on the right are expected to increase from the previous year, mainly due to increase in labor costs resulting from wage hikes and investments in mid-term management plan projects while incorporating the effects of structural reforms. Now, the following is the main topics. Komatsu exhibited at the International Construction and Trade Fair, BOMA 2025, held in Munich, Germany, from April 7 to 13. At BOMA 2025, we presented its latest initiative to realize smart and clean construction and mining sites of the future under the themes of innovation, sustainability, and digitalization. On this page, again, on Obama 2025, as a new generation construction equipment, we presented PC220LCI-12 equipped with the latest ICT functions such as 3D machine control. This is a PC220LCI-12, a new generation hydraulic excavator tailored to European market, which was originally launched in Japan in December 2024. The flagship model PC220LCI-12 will be launched in Europe, North America, and Australia in A525. We demonstrated the PC7000-11E, a wired ultra-large electric hydraulic excalibur as electrified construction equipment, and a megawatt-class quick-charging vehicle manufactured by DMAG Inc. as a charging and energy storage solution. Komatsu is only exhibiting with Aoki Asanaro Construction under the theme of Underwater Construction of the Future at Osaka Kansai Expo, which started on April 13. The exhibition is at the City of the Future Pavilion until October 13. Please come and visit us. That's all from me. Now, new midterm management plan will be presented by the CEO, Mr. Imayoshi. Thank you. I'm Imayoshi, CEO. My presentation discusses a new strategic growth plan announced today. My comments will mirror the details of today's announcement. Our new plan, as shown here, is titled Driving Value with Ambition. As I will discuss in detail later, the external environment surrounding Komatsu is growing increasingly complex. In response, we'll focus on ambition, which is one of our corporate values. The title of this plan indicates our commitment to working closely with our customer stakeholders to create new value and achieve growth across the Komatsu group. This title also expresses our expectation of every Komatsu Group employee to take on issues and pursue change, thinking outside the box of the past successes and conventional wisdom. This slide describes what I plan to cover today. Now, before working you through the strategic growth plan, I want to talk about the role of the plan in our company and recap our previous Mitra Management Plan. First, let's look at the role of a strategic growth plan. We revisited our purpose, values, and brand promise on occasion of our 100th anniversary in 2021 to put our values into words. We formulated the strategic growth plan based on our purpose, values, building on the management principles of a commitment to quality and reliability, and our drive to maximize corporate value. Our growth plan also reflects the Komatsu corporate social responsibility as described in our sustainability policy. Built on this foundation, the growth plan will guide us as we create a sustainable positive cycle of social issues solutions and improve profitability. This strategic growth plan covers three years from FY2025 through FY2027. At the same time, we create this plan in conservation of the next six years through FY2030. Now, I'll provide a review of our previous midterm plan. Under the previous plan, we pursued a number of different initiatives toward a vision to create the safe, highly productive, smart, and clean workplaces of the future with our customers. As you see on the right-hand side of the slide, our efforts created customer value in terms of innovative products and solutions and putting us well on the road to achieving workplaces of the future.

Now, let's take a look at the new strategic growth plan. Based on the achievements of our previous midterm plan, we redefined our vision, becoming a collaborative partner committed to optimizing safe, productive, and clean workplaces. As a collaborative partner with our customers, we promise to create safe, highly productive, and clean workplaces throughout the world. We create advancement in products and solutions through innovation. digital transformation and the growing value chain business, investing in our people and forging greater partnership at the same time. Specifically, we offer an expanding scope of solutions that include advancements in the global deployment of smart construction as well as open technology platform and the wider adoption of our app in the mining industry. At the same time, we pursue advancements in automation, remote control, and support for the variety of the power sources. aimed at decarbonization, offering a growing lineup of the SDB machinery highly compatible with the solution's affinity. Next, I will address the view of the external issues we identified when drafting the strategic growth plan. As shown here, we expect the external business environment to become increasingly complex and uncertain due to the complex interrelationship of the political, economic, and other risks, not to mention the drive toward carbon neutrality and rapid advancement in technology. We identify the implications for our businesses based on our forecast of the changes in the external environment. These implications are as you see here. First, in mining, we must respond quickly to growing customer needs for the decarbonization and automation. While preparing for the reduced coal demand in the longer term, construction method changes with deeper mining should be taken as a growth opportunity. Next, we must take a more detailed approach in construction business by region and country to meet the needs of customers in the growing markets of Asia, Africa, and elsewhere. In other areas, we must mitigate the impact of the geopolitical risks and heighten economic security across the supply chain. Here, we must change the sources and reassess the procurement ratio to build a more robust supply network. We see an opportunity for medium to long-term growth through solutions for customers in the forestry machinery and other sectors, fostering efficiencies amid shrinking labor force. Keeping an eye on the growth trend of the EV market will be important for our industrial machinery business for auto industry, where we see opportunities through GigaCast and other new technologies. We must also respond to long-term market growth and technological innovations in semiconductor equipment sector, all while considering measures for economic security. Thus, we understand the importance of the compliance with increasingly diverse regulations across the countries and regions. We must invest in the human capital to attract and retain talent. We must make decisions Quickly, on the global scale, these elements are all essential to Komatsu Group business growth. Our new strategic growth plan properly identifies the aspect of the changes in the external environment, not only for the group as a whole, but also for the individual businesses such as mining, construction, forestry machinery, and industrial machinery. The plan also identifies the risks and opportunities by region. We have incorporated these considerations into our strategy. Now let's look at solving the social issues through our business activities. We conducted a new analysis from the perspective of double materiality, identifying challenges according to the aspects of the business impact and environmental social impact. From these challenges, we highlighted those particular importance. Given the diversifying interest of our stakeholders, our aim is to achieve the sustainable growth through the positive cycle of the social issue solutions, improving profitability. We accomplished this aim by incorporating materialities in six areas, namely the employees, human rights, customers, ethics and governance, and local communities and environment. This summarizes the key business challenges reflecting our analysis of the external environment and materiality, as well as demand forecasts for the construction and mining equipment. We project moderate growth for mainstay construction and mining equipment business over medium to long term amid the population growth and urbanization in emerging economies. However, external risks over the short term will mean ongoing volatility. Given these assumptions and backcasting for our vision, we conducted scenario planning toward sustainable growth in light of risks and opportunities. We established the main scenario for the future, as well as several sub-scenarios. Through this process, we identified three important management issues. Sustained investment for the future growth, strengthening profitability, and enhancing management resilience. We incorporated detailed efforts related to these important management issues into the growth strategy of our new plan. Our aim is to achieve the growth above that of the market average, even in the event of the downside scenario.

At this point, I want to talk about the big picture and certain details from a strategic growth plan. Our overall approach is to tackle business issues throughout the Komatsu group, guided by the keyword ambition, which represents one of the Komatsu values. With this in mind, we chose driving value with ambition as the title of the strategic growth plan. the three pillars of a growth strategy are as follows create customer value through innovation drive growth and profitability and transform our business foundation first in terms of creating customer value through innovation we intend to co-create co-create new value through strategic investments new technologies and new business areas and new solutions further we will driver we will deliver product and solution innovation through ai and other technologies for carbon neutrality and customer workplaces optimization. Second, to drive growth and profitability, we aim to achieve growth and improve profitability through advanced workplace operations for our customers. In addition to growing our value chain businesses, we intend to maximize revenue opportunities by offering labor savings and optimization through AI and DX. Further growth will come as we respond in detail to customer needs through optimized marketing strategies for each business, region, and country. Third, to transform a business foundation, we will accelerate efforts to recruit and enable the success of diverse human resources to support business growth while strengthening the Komatsu brand through enhanced branding activities. In addition, we will introduce bold and agile initiatives to streamline business infrastructure, meaning systems and processes, through AI and DX. The next slide highlights specific priorities based on these three growth strategy pillars. Here are the priorities of our new strategic growth plan. We plan to grow through detailed priority activities established for each business and region, paying greater attention to the three axes. Number one, the axis of development and production. Second, the regional axis of North America and Asia. And three, the axis of business from the perspective of mining and construction. Our main activities under the growth strategy include the following. To create customer value through innovation, we'll focus on responding to diverse power sources and achieving higher levels of automation and remote control. To drive growth and profitability, we'll focus on stronger product competitiveness by region, particularly in Asia and Africa. To transform our business foundation, we intend to accelerate the use of AI and digital transformation, strengthening our management infrastructure, reinventing our core systems, and developing solution platform for our sales agents. This slide indicates the direction of a business portfolio over the medium to long term, which people achieve through the priority activities of a strategic growth plan. We will improve growth and profitability in our mainstay mining and construction businesses through evolved and more widely adopted solutions that drive product and solutions value. At the same time, we plan to grow our aftermarket business and strengthen product planning in growth regions. The forestry machinery business will become stronger, playing a role as a third pillar of our business, together with mining and construction. We intend to improve our already high-profit structure in semiconductor manufacturing equipment, keeping an eye on geopolitical risks and taking advantage of higher market growth. A business for industrial machinery in the automotive sector will grow and become more profitable as we deepen aftermarket services and expand our automotive battery business. As we engage in M&A and other means for existing businesses, we'll continue to explore new business areas for long-term growth. This table below describes the management targets for the span of a strategic growth plan. In terms of financial targets, we will continue with the goals from our previous plan to outgrow our general markets and be the most profitable business in our markets. At the same time, we intend to secure profits and continue investing growth, supported by free cash flows and a goal of accumulating 1 trillion yen in profit over three years. We will maintain our target ROE of at least 10% as a goal indicating efficiency. We change the target DE ratio in our retail finance business from 5 times or less to 6 times or less, making use of leverage. Our shareholder return policy continues to be a consolidated dividend payout ratio of 40% or more. We also intend to conduct share buybacks in a timely manner, balanced by considerations of financial soundness and our shareholders' equity ratio. Our non-financial targets include overall assessments of KPIs related to solving social issues. We also added KPIs for evaluation by external organizations. Indicators related to reducing environmental impact, including CO2 emissions reductions, remain as separate items and targets of particular importance to our organization. Last, I want to discuss our effort to solve social issues. Reaffirming the purpose of sustainability policy, we aim to achieve sustainable growth through a positive cycle of social issue solutions and improving profitability. This way, we intend to carve out a future in which people, society, and Earth can prosper together. We establish and track KPIs for activities that are particularly important from the perspective of materiality. This slide shows our main activities and KPIs for solving social issues. We will provide more details in our annual integrated report. This concludes my part of our presentation. Thank you.

Now we'd like to take questions. Thank you very much for this opportunity. My name is Sasaki of UBS Securities. First, my question goes to Mr. Imayoshi. Congratulations for your nomination. So new strategic growth plan was explained, and now as a top management, of the company while you are the CEO, are there anything that you want to make sure you achieve? Any strong intentions to achieve? I'm sure that you have given us a lot of details in your presentation, but in terms of your passion as a President and CEO, what are the things that you want to definitely achieve? Thank you for your question. The goals of the strategic growth plan was explained and we mentioned the cash flow and also there are qualitative targets and basics for that is that our industry is very cyclical. And as I became the President and CEO, what I wanted to say was that the strength that we have at Komatsu, we want to maintain and strengthen them in our business. So there are various strengths that we have. So quality and reliability, those are our strengths, and the production network and the sales network that we built in the world, and aftermarket initiatives that we have been working on, and also not just the products, but also the experiences and the projects and so forth. How to grow that is something that we would like to focus upon, including the solution. So in terms of achievement, our goal, I talked about the cash flow and we will be focused on the cash flow so that we can focus on the growth as well as the profitability of our businesses and also how to use the We would like to make sure that we spend that for the investments to have a high ROI and to show the good results and achievements. Oh, thank you very much. So basically what we have done so far, you want to go deeper and generate the cash or cash flow. Yes. Thank you. My second question. is on the impact of the US tariffs on the page 15 and 16. Well, thank you very much this time you have given us those presentations. I think 140 billion is mentioned on page 16. And on page 15, you mentioned that, for example, in mining procurement, and also the construction equipment export, and you also mentioned the export from the United States, so 140 billion cost. What is the breakdown of that? If you can quantitatively talk about that using page 15. Well, The tariff sale tax is very complicated. It's very difficult to calculate and show on the slide. But in terms of the structure of our business in the United States, the machinery is manufactured in U.S., including everything exported and used inside of the United States. is actually imported once. So the breakdown of the import is shown on page 15. So actual production, so it's about half of this amount. So based on that, we made a calculation. So nominal GDP 1.1% is used as a basis. Because in the past, the construction equipment demand, we tried to look at the, for example, the real GDP, nominal GDP, inflation rate, and so forth. But I think the nominal GDP is the strongest in terms of the correlation. So nominal GDP, when it comes down by 1.1%, IMF says that it's a real GDP, but we are looking at the nominal. So nominal GDP, when it goes down by 1.1%, 2.7% decline. in this business is what we expect it's based on the regression analysis and we try to come up with the appropriation line and we made a calculation so 2.7 percent decline is what we expect so right now the demand that we have is distributed in the different regions so when it comes down by 2.7% it will look like this and in terms of sales on page 16 so about 50 billion and the profit is 15 billion decrease that we expect in addition as I mentioned There is a tariff side. This is the $140 billion, and we have inventories locally for about five months or so. So seven months worth of that. So $78 billion is what we calculated in terms of the increased tariff cost. So the impact of the U.S. tariffs as a total, as you can see, 78.5 billion and in addition as i mentioned the lower sales so 15.8 billion is added so 94.3 billion is the total impact i see thank you very much so 140 billion going go back to that the which part is the highest in terms of the cost burden? You export from Japan, is it higher for that, for the construction equipment and the mining equipment? Or you procure from overseas, is that bigger? So this 140 billion, this is quite big. So is that going to be a big burden? In terms of the breakdown, the export from Japan is the biggest, and also from China, including parts. So Japan and China, the parts and also the construction equipment go to the United States, and so that would come under the U.S. types. Thank you.

Thank you. I'd like to take next question. Morgan Stanley, UFG. Ivara-san, go ahead. My name is Ivara from Morgan Stanley. My first question goes to FY2024, performance. The performance of FY24 is much better than what you had expected. So could you please give us a breakdown of why and what drove that performance? And in your presentation, you said the US and Asia and Oceania. In FY24, there was a good shipment. And because of that, for FY25, you are seeing those performance to be a little bit tighter. So Q4, Oceania Asia revenues increased significantly. So does that mean that the Q4, there was much shipment, much earlier than we had expected? Could that have a significant impact on this A525? Maybe that reason is coming from the different section, but could you please give us details of the reasons? Thank you. Well, versus October announcement, annual performance, meaning the second half performance, let me give you the figures. The net sales, versus the plan 119 billion yen outweigh the plan and 132.5 billion yen of the FX that is coming from the FX and 12 billion coming from the volume very much in line with October announcement and pricing 2 billion in shortfall which is very much on a par with the plan versus October announcement and new consolidated group impact coming of the 1 billion, so 119 billion yen of the net sales. Now I set the 12 billion of the volume and let me give the breakdown of the money equipment almost in line with the plan. shortfall of 12 billion is coming from the construction equipment. And as far as this equipment is concerned, and back in January, we made an announcement too, and we said that Japan demand will be plus minus 0% to 5%, and North America, conversely, 5% increased. So that impact was considerable, and that came to the numbers. Versus October announcement, Japan significantly made shortfall plus European market was considerably lower than what you have planned, so which drove the negatives. But North America was positive, and also Middle East, large-scale projects were coming in. I would say 12 billion yen is a shortfall against the plan and announcement. Now, as far as the mining equipment is concerned, The Oceania region is great. So significant jump, significant positive. And also in Indonesian market, Q3 and beyond significantly better. So that gives us positive. Conversely, mediocre performance was observed in South Africa. Because Anglo-American, which is a main client, what do I mean clients? This client tried to restructure his business and trying to improve efficiency. So that gives us some negative impacts. And also in North America, markets versus the plan, it gives us a little negatives. That's what it looked like. Now looking at profits versus October announcement, 58 billion yen exceeded the plan. FX impact, 37 billion. And volume difference of the 5.5 billion. And the mix difference came large. So product mix and region mix, I mean, Indonesia increased a lot and also product mix was a large reasons. And money equipment and spare parts and those gross profit was great. So product mix and region mix in total, together with other reasons, including cost, 19 billion yen exceeded versus the plan and 2 billion yen negatives in some regions and also cost of goods 2 billion yen positive versus the plan and fixed cost 7 billion yen or so We tried to cut out the cost. That's why there was some surplus and five on a consolidated basis. Okay. In the new fiscal year 2025, Oceania and Asia market, you try to see the performance to be tighter. It's rather than making and realizing those business earlier, but you are trying to see those performance reflecting the good performance from North America or so. Is that what you're saying? Well, in Australia market, FY24, based on negotiation basis, it was great. It's not that the situation itself is significantly changes, but then it sells for decline. Okay, thank you. My second question is on midterm management plan or strategic growth plan. Some changes are made from the previous midterm management plan. It's not that you ignore the health but the item was gone, and the finance item, like a debt equity, times increased. To an extent, the leverage on balance sheet is something you try to value a bit. That's what it looks like, at least from our perspective. What's the message we want to communicate to investors on your value on leverage on balance sheet? How much freedom or latitude would you enjoy from it? And what can we expect? How much latitude would you enjoy so that you can change your business? How much expectations can we have in the future? Well, to be sure, yes, we remove the healthness item, but it's not that we will ignore them altogether. That doesn't really make sense to have it in a midterm management plan, period. But five times to six times that times change, currently 4.5. Because in emerging markets, Africa and other regions, and those play important role. So we continue to take advantage of that as we go forward. And certain control level, we need to make sure, and we believe that we can take certain risks. All right. a little bit on the 1 trillion yen of free cash flow back in FY24 versus the guidance of FY25 and actual FY2024 there's a difference of three times there are many many ways and variety of the ways to generate free cash flow but working capital or any of things. Are there any things you would like to value or commit it so that you can deliver value in the future? I know you may not be giving us any detailed figures, but do you have any ideas around it? Well, FY25 guidance, I know it looks a little challenging, but including potential impacts from Trump tariff, these figures have been done in math. So, We would like to generate and improve cash flow through our efforts and others and together with top line and profitability is something we are valuing together with the control of the working capital. This is a goal that we should achieve. I know there is a little fluctuations and depending upon the how much impact, how much disruptions we might have to suffer from over the next three years, the figures might be different. What hundred millions of yen are expecting for FY25? FY25? Yes. A little bit less than 320 billion yen. Okay, less than 320 billion. The working capital inventory will be better? Has it been included? Currently, 306.5 billion, but originally, I said 370 billion in April announcement because it does not include M&A. So if you exclude that, then 2024 fiscal year, 40 billion yen was in short. The reasons are that net sales. In March with so aggregated net sales coming, Net sales are coming in aggregate, but accounts receivables increased significantly. And that was right before we were able to correct those. That's why there was a 40 billion yen in short. But FY 2025, inventory assets will be squashed and working capital itself will be squashed too. So its impact is something we need to be mindful of. And the profit will be decreasing a little bit based on the plan, but there is a more free cash flow. Okay, thank you.

Thank you. Next question. From Nomura Securities, we have Maekawa-san. Thank you. This is Maekawa from Nomura Securities. I also have two questions. First is about the tariffs and tariff-related question. In this plan, the impact of the tariff, the price increase is not included. So I want to confirm that. And the selling price difference, 74.1 billion. So this is quite a high impact of the higher profits. So could you explain the background of that? Yes. With the higher tariffs, we did not include other price increases directly related to that. As a surcharge, eventually it is possible to have a surcharge, but we'd like to wait and see, so that is not included in the projection. But at the same time, as I mentioned in the analysis, the price gap of 74.1 billion, this is the ordinary activities. So rather than single year, the cost increase and the improvement through our initiatives will be included as we have been doing so partially with this 70 billion we want to offset the impact of the tariffs but as i said at the beginning we'd like to wait and see what would happen and consider how to pass it on to the prices. Right. So when you try to watch what would happen, of course, we don't know what would happen to the tariffs, but say that after the 90 days grace period, and you mentioned that there is an inventory of five months. So during the five months, you will look at what the competitors would do and then make a decision. Yes, basically, that's correct. On page 15, as I mentioned, the procurement structure changes for the different periods. So how to reflect that to the price would be different. So as you said correctly, we would like to see what would happen. Thank you. well you mentioned that 74.1 billion yen that is the regular level and the parts and the services and also the mining and the construction equipment when you have the breakdown of those which part is bigger compared with the year before this is a higher level so mining probably will remain and the parts there are probably more parts with the higher prices so if you can give us a bit more background Well, first of all, 2024 fiscal year, as we mentioned in October and also January, the parts price increase was the big price increase. So the parts is big and also the overall products. And in comparison to the construction equipment, the mining equipment prices have gone up more. And for the FY25, currently what we factor in is in comparison to 24, the construction equipment price increase is probably stronger this time or higher. Just as last year, the parts price hike is big in terms of the amount and the percentage as well. That continues to be the same, but it's not as high as last year. So to offset that, we include that to the finished product. So that's for FY25. Thank you. My second question is also about the strategic growth plan. So you mentioned ambition. and also the solution provider, collaboration provider, the partner was mentioned. And it's also related to the cash. So to pursue the new areas of the business through the mergers and acquisitions, I felt that was something new. So in the previous midterm management plan, You mentioned that you would enhance your advantages. So new areas of the focus, what are the new areas? And if you can explain the way of thinking. Well, as a title, the positioning of the strategic growth plan was already explained. One of the values that we have at Komatsu and at this 100-year anniversary, we had the global discussion. And these are the values that we came up with. And we chose the word ambition for this plan. And we want to be very positive and aggressive. And as we explained, there are various areas of the challenges we have in economics and politics and so forth. So we want to address those headwinds positively. So solution partner is the new term that we are using. As we mentioned in the previous term, we talked about the future. and a smart control. We mentioned that and we want to expand that and to realize it as our positioning in the smart construction. And I think that we have to become more of a solution partner. That was the word that came up in the internal discussion. So we would like to work on that as a group, as a whole. About the M&A, if you can mention that. or as you know, since the past, we have been growing through M&A. So we'd like to watch the areas of the businesses and we'll be working on the M&A positively. So far we have, as of now, we do not have any major M&A, but GHH acquisition was done, GHM, and through those acquisitions, if we can grow mutually, we will be considering that in a positive way. Thank you.

Thank you. Anyone else from the floor? Goldman Sachs. Adachi-san, go ahead. Thank you very much. My name is Adachi from Goldman Sachs. I got two questions too. Number one, the growth strategy of the Sushi growth plan. Page 47, you talked about growth strategy about business, but I mean, this sector itself is cyclical. It's really all about how we can grow the aftermarket sales, and that's been a consistent challenge from the previous president. But what would be the third pillar for that? Would it be the emerging country or underground or forestry? I mean, what would be, where would those scale-up business come from? What area would you expect the most? Well, in terms of the scale, We have so much potential to grow in a forestry business and a construction community, especially in aftermarket. We have grown the business, but the various forestry around the way, there is so much potential to grow. So we like to practically working on that. And in terms of the region, as you see here, the Middle East and Africa, and those are regions that are growing, that could grow in the future. So this market growth needs to be captured as a business opportunity. That's areas we have to allocate the resources. And the Asian distributors need to grow and invest it. And also we have to do that more in our efforts. Those are something we'd like to do more. what about underground especially in north america there was a the management change like hard work what do you mean by under underground you meant underground yeah well yes underground soft lock and hard work there are two buckets for that and soft lock the demand of the coal will edge down in the future we believe but still it's a stable business And our clients continue to keep using our products. So we continue to support them to driving profitability. And it's a profit structure is in place already, but we continue to do that sustainably. And also soft lock area, other than coals, calium, and also the others. So these are some demand that remains. So we continue to grow that. And hard work. These were going to, including copper, these were going to the underground business. Thank you. Second question is production and inventory. Still, five months inventories remain in the United States, and you don't necessarily have a great visibility for demand, and production will continue to be consistent from the previous year, I think. But in March, you disclosed the numbers. But FY25, you said that you can expect a little bit. So by six months, like first half and second half, The production will continue to... production will grow in the second half if the pace is consistent from the previous year. What would you say? Well, first of all, in North America, 2024 fiscal year, we squashed a lot of inventory. So wholesale was a weaker in FY2024 versus retail. If at the end of FY2024, we almost finished adjustment of inventory. So, FY2025, slightly inventory will increase. That's what our plan says in North America. So, as we look ahead to FY2025, demand and production will continue to... production and demand will match in wholesale and retail. That's what the FY2025 will look like. Conversely, in European markets, In FY24, we significantly decreased the level. And we continue to slightly decrease its inventory level in the market, too. Thank you. Could you please focus on the United States, the end of FY2025? Will the five-month inventory be reduced to what level? Well, almost the same. Okay, thank you. Thank you.

Now we'd like to take questions from the remote participants. From Yomiuri Shinbun, we have Takamura-san. Can you hear me? Yes. Kamura from Yomiuri Newspaper. Thank you. First question, at the point of clarification, earlier the person from Nomura asked a question, and you have five-month inventory, and as for the price reflection, you would wait and see what would happen. So Mr. Imaiyoshi was giving that answer. Is that right? And in addition to that answer, any reaction to the potential Trump tariffs, anything that you are considering. Another question is on page 15. The local production of the construction equipment, you mentioned that the import of parts is high. So what is the percentage if you can give us the ballpark figure? Yes, Imaoshi speaking. Yes, that's correct. So the reflection to the prices in the United States is something that we will decide eventually. As for the countermeasure against the tariff on page 16, the cost difference, as we mentioned on page 15 from the import from Brazil or components to manufacture in the United States and mining equipment parts. There are different products that are related. So as a countermeasure that we can do right away, for example, the product export from Japan, if we bring that directly to Canada, that's one of the things that we can do right away and we have already started the initiatives and the effect of that is already included here on the net basis so in the medium term 78 billion 140 billion in for the four year in order to offset that we are working on the medium term initiatives, and those are not yet included, but we'd like to be as effective as possible. Thank you.

Thank you. Hello, this is from Nika newspaper. Do you hear me? Yes, please. Go ahead. Thank you. Thank you for your presentation. I got two questions. Number one, on tariff, let me clarify one thing. In each country, retaliatory tariffs can be enforced, and with that impact coming to the cost increase and demand fluctuation, have you included those into projections? Well, retaliatory tariffs have not been announced officially, so we haven't incorporated that into our plan. Only in China. Okay, China. Only China does include numbers. Okay, thank you. And European markets, that's my second question. The demand is expected to decrease, as you said, but because of the FX impact, the net sales are expected to increase, you said. And inventory adjustment will continue, I guess, but could you please clarify the overall picture in this market? Are you asking question on European market? Yes. Well, in European market, 2024 fiscal year considerably declining and looking at the order trend. slightly started to pick up over the last few months and the rates were cut. Probably because of that impact for FY2025, we are seeing the performance as a positives and also inventory adjustment will continue for FY25 as I said, but FY24 inventory adjustment was extreme. that impact will be gone for FY25. So in terms of net sales, that will be increasing. Okay, so inventory adjustment in European market, when will that be finished? I don't think it takes so much time, like that will be finished in Q3 or so. That's my personal guess. All right, thank you. That's all from me.

Thank you. Coming back to this room. Any questions? Diver Securities, Ai-san. Tai from Diver Securities, thank you. Just one question. Last year, December business briefing, during that session, Horikoshi-san said that you'll be focused on the cash flow and the capital efficiency. and others. So those are factored into the strategic growth plan this time. As an extension of that, I think you talked about the difference of the PR against the caterpillar. So this time, I think you are probably keeping that in your mind. You talked about the leverage and others. Sorry to be long in the question, but Imayoshi-san, so vis-a-vis CAT, of course that it would be very difficult to beat CAT, but to get close to number one or to be on the equal footing, you said that you talked about the sixth year in the future. And as you talked with the various investors, I think that the discussions have been similar to the past. So how do you catch up with the cat in terms of valuation? And I think that you have to really show the excitement of your growth. What was the discussion that you had internally and how to include that into the strategy growth plan? The forestry and underground, there are different areas, but it's very comprehensive. But among those, to catch up with the caterpillar, what kind of stories are you going to be telling? Of course, maybe you don't have a conclusion, but what kind of discussion did you have? Well, in the strategy growth plan, in formulating that, we had various discussions. And as we discussed so far, in comparison to Caterpillar, the business portfolio are not exactly the same. And if you compare the construction and the mining, in terms of mining, I think we are on par on sales and profitability. But the construction equipment, the volume is much smaller, and profitability is still lower. And of course, one of the reasons is that the US is the home ground for them. and it's very difficult to compete against them. And of course, we are trying to work hard, but it's difficult to catch up with them quickly. But this, I think that the India, the Middle East and Africa and also Asia, we want to grow in those areas and to capture the growing demand and also the aftermarket profitability. needs to be enhanced, so we want to improve our profitability. So the capital structure, talking about that, as you know, it's completely different from the U.S. company and the procurement structure is quite different. So as one of the messages that we can send out, I talked about the return policy and 100 billion yen share buyback that we plan to do. So we are keeping that in our mind and also we will be focused on the cash flow. So that's how we are looking at this. So this time, including the companies in China, you're showing the demand trend. So until now, in addition to China, you have Indonesia. In the coming three years or six years, I think you are more aware of those regions. In terms of the spread of the graph, the part in China is not so different from the past. So are there any changes that you are feeling as for the demand, not in terms of the competition? There are different areas and so forth. We decided to include this time, so that's an improvement. So competition against the Chinese players, that will become more intense. So in the plan by region, we want to mention that. And by region and by country, we have to have different strategies, and we need to focus on that. we stopped using the traditional markets and the strategic markets, but rather we want to think about the future. And that's how we discussed in this strategic growth plan. And we decided not to use the term strategic markets or the regions.

Thank you. Thank you. Anyone else from the floor? are we good to move on it's a 10 minutes left so as much as we can we like to entertain questions from the people joining us online like to take questions from the the people online mcdonald mr mcdonald from city group do you hear me yes please i'd like to be brief i got two questions number one let me clarify one thing on tariff page 16 you said 78 billion yen 78.5 billion yen But you said 94.3 billion in the middle of the compensation and the 15.8 billion of the gap between the two. I might have missed something, but this 15.8 billion is coming from where? Well, as you see in the page 16, because of potential impacts from tariff, demand might increase, net sales might increase, and because of that, profits might decrease. So I said $94.3 billion because we added those numbers into $78 billion. Okay, got it. Thank you. $50 billion decrease in net sales. Without potential triumph tariff, we hadn't projected that this decrease. But we should say that this is coming from the Trump tariff. So that's why I said $94.3 billion. Okay. Page 49. Strategic growth plan targets for financial ROE over 10% targets over the past three years. 14% or so, right? So more than this 10%. This is about... My question, could you please be more straightforward? If you can decrease the gap of the valuation, maybe you can talk about the capital structures or so, but what about you should hire aspirational target like over 15%? I have a question mark on this 10% and 40% were over. It's not that bad. And this fiscal year 24, the dividend payout ratio has been consistent. I get it, but like a total payout ratio or total shareholder return, I think you should include those targets into this target. Didn't you have the discussion? the discussions around total shareholder return or total pay ratio, and why do you think 10% or more target is valid? Could you please justify those targets? Yeah, this is Horikoshi speaking. I'll read 10% target. I guess I talked about it before. For example, sustainability growth ratio. This math, net profit will increase into equity ratio and that will become denominator. So without doing anything ROE decreases in a linear fashion. For example, 10% need to be sustained for ROE. For us to do that, then total pair ratio of 50%, then net profit needs to increase by 5% every single year, otherwise we can't maintain 10% of ROE or 40% of payer ratio. Net profit growth rate has to have 6%, otherwise we can't maintain 10% of ROE. So theoretically, such a higher level of ROE is very difficult. I know this is a logic and theory basis, but if you do the math, you get it. That's one thing. And total shareholder return or total pair ratio, and you should set the numbers. Yes, we discussed that thing. and buy back like seven years and how much like the one you see in the United States. We can do that in Japan from the legal perspective. We only talk about these things in annually. If it's a dividend payer ratio of some percent, then how much buyback are going to go ahead and that's a kind of calculation that investors and analysts will make and that will arise speculation. It's not a good thing. That's one thing. And the total payout ratio, total shareholder return, has been announced by some companies. If you analyze those companies, then if you pursue total payout ratio or total shareholder return, we can get really good numbers. So dividend payout ratio and the buyback Based on future cash flow, potential future cash flow, we will do that in an agile manner. That's kind of the method some companies return. So based on those ideas, I set those targets. Okay, I would like to have some more questions, but because of the interest of time, I would like to end my questions here.

So next question will be the last question. SMBC Nico Taninaka-san, go ahead. Taninaka from SMBC, Nikko Securities. Thank you very much. Two questions. First, as the prices of the thermal core is coming down, and Indonesia and the power generation, and you said that the demand is very solid. So once again this thermal coal price is coming down and what is the impact of that and demand for the mining equipment I mentioned is strong so could you explain the background of that? Thank you. Shinuma speaking. About the thermal coal price, $50 and lower continues to be the case. But having said that, when you consider the customer's profitability, even at this level, it is still positive. And looking at the situation in China, the import is going to be increasing. So for the time being, we think that the strength will continue. So that's our view. Thank you. Another question in this strategic growth plan. The growth, you mentioned that it would be higher than the industry average and also the profitability higher than the overall average of the industry. Those are the qualitative explanations. So I'm sure that the cycle is very fast, and that's why you didn't give us the quantitative targets. But I'm sure that there were views to, it's better to have come up with quantitative targets. So why did you mention only the qualitative ones? And the growth rate and also the profitability in the industry. What has been the reaction to your goals? About the qualitative targets, yes, in discussing the strategic growth plan, we discussed that matter many times, and our industry is very cyclical, and in the past, for example, One year after we made a plan, we achieved a target that happened. So there is also uncertainty or changes. So we wanted to go with the qualitative targets. But as for the profitability, we are one of the leaders in the industry. but we are not number one, and we want to aim for the top level. So we want to have the aggressive targets, and that's one of the discussions that we had. So in the previous midterm plan, the sales and profitability in comparison to Caterpillar three-year average, it did not we did not see the big differences. So about the sales and profitability, how do you evaluate your results in the past three years? Well, the growth of the net sales on page 11, as an average 6.2% and compared to other companies this was quite good and profitability 16.0% this is very high As for CAT, it's about 20%. So in comparison, we are number two. Compared to other competitors, we are better. But in comparison to CAT, we further need to make efforts. As for the size of the cells in mining, depending on the forex, of course, but the comparison to CAT, the size of the cells is bigger and the profitability is better than CAT. So the issue is in the area of the construction equipment. And the volume difference is so huge. So with the gross margin of 30%, when you have the same volume, profitability would be the similar level. So how do you increase the mass of all the construction equipment? That would be very important. Thank you for your explanation. Thank you very much. That's all.

Thank you very much for many questions. With that, we would like to end FI 2024 Financial Briefing of Komatsu LTT. Thank you very much for participating, David. Thank you.