Komatsu Ltd S/Adr

This is Horikoshi, the CFO. I'll explain the summary of the financial results for Q1 fiscal 2025. Page 4 shows the highlights for the first three-month period of fiscal 2025. The exchange rates are 145.5 yen to the U.S. dollar, 162.5 yen to the euro, and 92.6 yen to the Australian dollar. Compared to the same period last year, the yen appreciated against the U.S. dollar, euro, and Australian dollar. Net sales decreased by 5.2% year-on-year to 909.5 billion yen and operating income decreased by 10.6% to 140.4 billion yen. The operating income ratio was down by 1 point to 15.4%. Net sales and operating income decreased respectively despite the promotion of price increases due to the appreciation of the yen year-over-year as well as the decrease in sales volume and increasing costs. The impact of additional tariffs imposed by the U.S. in Q1 on tariff costs was minimal. Net income decreased by 16.9% year-on-year to 91.2 billion yen. On page 5, I'll talk about segment sales and profits. Net sales in the construction, mining, and utility equipment segment decreased by 5.5% from the corresponding period a year ago to 844.9 billion yen. Segment profit decreased by 14.1% to 122.3 billion yen, and the segment profitability decreased by 1.4 points to 14.5%. Retail finance sales remained about flat year-on-year at 30.4 billion yen, while segment profit increased by 22.5% to 9.4 billion yen. Industrial machinery and other sales decreased by 4.6% year-on-year to 43.5 billion yen, while segment profit increased by 43.5% to 7.2 billion yen. I'll explain the factors behind the changes in each segment later. Page 6 shows the sales by region for the construction mining and utility equipment segment. Net sales in the segment decreased by 5.5% from the corresponding period a year ago to 842.3 billion yen. Excluding the impact of foreign exchange, the decline in sales in North America was significant, mainly due to a decrease in sales of mining equipment compared to the same period of the previous year. In other regions, excluding Japan and China, sales increased in real terms, excluding the effects of FX rates. Page 7 shows the causes of difference in sales and segment profit for the construction, mining, and utility equipment segment. Regarding sales, despite offsetting the decline in volume with improved selling prices due to the impact of yen appreciation compared to the same period last year, sales decreased by 49.4 billion yen from the corresponding period a year ago. Segment profit decreased by 20 billion yen from the corresponding period a year ago, mainly due to the appreciation of the yen year-on-year, although the decrease in sales volume and increased costs were partially absorbed by improved selling prices. The segment profit ratio decreased by 1.4 percentage points from the corresponding period a year ago to 14.5%. Page 8 is about the retail finance business, as it's decreased from the previous fiscal year end, mainly due to the impact of the Japanese yen's appreciation against the U.S. dollar. New contracts decreased from the corresponding period a year ago due to yen appreciation and a decrease in new contracts in North America. Revenues remained about flat from the corresponding period a year ago due to the appreciation of the yen, despite an increase in interest income. Segment profit increased by 1.7 billion yen from the corresponding period a year ago, mainly due to lower procurement costs. Page 9 shows segment sales and segment profit of the industrial machinery and other segment. Sales decreased by 4.6% from the corresponding period a year ago to 43.5 billion yen. Segment profit expanded by 43.5% year-on-year to 7.2 billion yen. And the segment profit ratio increased by 5.6 percentage points to 16.6%. Although sales decreased, due to a decline in sales of large press machines. Segment profit increased due to increased sales of high-margin Examer laser maintenance. Page 10 shows the consolidated balance sheet. Total assets amounted to 5,846,000,000 yen, an increase of 72,700,000,000 yen from the end of the previous fiscal year, primarily due to an increase in inventory assets. Inventory assets totaled 1,500,000,000,000 yen, an increase of 94,000,000,000 yen from the previous fiscal year end. The equity ratio decreased by 1.9 percentage points from the previous fiscal year end to 53.1%, and the net DE ratio stood at 0.29 times. This concludes my part.

Next, Mr. Hishinuma will provide the outlook for FY 2025. I am Hishinuma, General Manager of Business Coordination Department. I will now discuss the FY 2025 earnings forecast and the status of major markets. Page 12 shows the latest estimates of tariff costs based on the U.S. government's announced tariff policies and rates. We have not revised our demand, sales, or profit outlook due to the tariff policies. But we now estimate a 30 billion yen decrease in payment-based tariff costs and a 3.5 billion yen decrease in profit impact compared to the April public announcement. As for the profit impact, we expect the decrease to be smaller than the payment base due to factors such as inventory effects within the U.S., Page 13 summarizes the tax rates that form the basis of these estimates. For items other than steel and aluminum, the applied tax rates by country have in many cases decreased compared to our April forecast due to bilateral negotiations. However, for steel and aluminum, a 50% rate was applied globally as of June, and as a result, many cases are now higher than our April forecast. Page 14 provides an overview of the FI 2025 earnings forecast. Our full-year FI 2025 forecast remains unchanged from our April outlook. From the next page onward, we will explain the demand trends and outlook for the seven major products. Page 15 onwards covers the demand trends and outlook for our seven major products. The demand figures for the seven major products include mining equipment. Figures for Q1 FY 2025 are preliminary estimates by our company. Estimated demand units for Q1 FY 2025 declined by 3% year-on-year. We have not revised the full-year demand outlook for FY 2025, but we will explain the situation in major markets on the following pages. Page 16 shows demand trends and outlook for the North American market. Demand in units in Q1 FI 2025 declined by an estimated 4% compared to the same period last year. We have not revised our demand outlook this time. However, inventories of construction equipment and distributors have been adjusted to appropriate levels, and there are signs of stabilization in rental demand. On the other hand, the impact of U.S. tariff policies on demand in the North American market remains unclear, so we will continue to closely monitor the situation. Page 17 presents demand trends and outlook for the European market. Demand in units in Q1-FI 2025 are estimated to have declined by 3% year-on-year. Although we have not revised our demand forecast due to interest rate cuts by ECB and fiscal stimulus announced in Germany and the UK, we see signs of improving business sentiment and stabilization in demand, and we will continue to monitor future developments. Page 18 shows the demand in the trend and outlook in Southeast Asia. In Q1, FY2025, estimated demand units increased by 7% year-on-year. In Indonesia, our largest market, demand began recovering in the second half of FY 2024 following last year's presidential election, and as a result, demand increased year-on-year in Q1. We have not revised our demand outlook this time, but recent declines in coal prices, delays in large-scale projects, and reductions in infrastructure budgets lead us to closely monitor future demand trends for both construction and mining equipment. Page 19 covers demand trends and outlook for the Japanese market. In Q1 FI 2025, demand in units are estimated to have decreased by 16% compared to the previous year. We have not revised our demand forecast, but rental equipment utilization is currently sluggish, which is putting downward pressure on demand. Labor shortages are also seen as a negative factor for the construction industry, so we will continue to monitor developments closely. Page 20 shows the price trends and outlook for major minerals related to mining equipment demand. Prices for low-grade coal in Indonesia are on a declining trend and are being closely monitored, while other minerals remain at relatively high levels in the long term. Page 21 presents demand trends for mining equipment. Demand units in Q1-FI 2025 are estimated to have declined by 3% year-in-year. Although demand declined in regions such as North America, overall demand remained solid. We have not revised our demand outlook. With coal prices currently declining in Indonesia, we will closely monitor future demand trends. However, we expect demand in other regions and for other minerals to remain generally firm. Page 22 shows the sales of mining equipment. In Q1 FY 2025, mining equipment sales decreased by 8% year-on-year to 406.3 billion yen. Excluding the impact of exchange rates, the decrease was 2%. We have not revised our FY2025 full-year sales forecast, which remains a 10% year-to-year decrease to 1,727.9 billion yen. Excluding currency effects, this represents a 2% increase in revenue. Page 23 provides a sales outlook for original equipment, parts, and services in the construction, mining, and utility equipment segment. In Q1 FI 2025, part sales decreased by 8% year-on-year to 241.9 billion yen. Including services, the aftermarket as a whole accounted for 54% of total segment sales. Excluding currency rate effects, total aftermarket sales increased by 1% year-on-year. The FY2025 full-year forecast for part sales remains unchanged at 987 billion yen, a 6% decrease year-in-year. The total aftermarket ratio, including service, is forecast to be 53%, excluding FX rate. Total aftermarket sales are also forecast to rise 4% year-in-year, with no change to the previous outlook. This is page 38 onwards. We'd like to share with you the topics for Q1. This is page 38. Komatsu has signed a contract to supply mining equipment for Reko Dick Copper and Gold Mining Project, which is being promoted by Barrick Mining Corporation of Canada in cooperation with the Pakistani government and the Balochistan Provincial Government. This marks Komatsu's first large-scale order for mining equipment in the Middle East territory, with equipment deliveries totaling approximately US$440 billion, scheduled to begin in FY2026. In conjunction with this contract, we will establish Komatsu Pakistan Mining to strongly support efficient mining operations. We also plan to make investments through Komatsu Middle East, our regional headquarters, to enhance parts supply systems supporting the project. This is page 39. Komatsu has introduced its new power agnostic truck at High Tech Copper Mine, one of Europe's largest copper mines owned by Boliden of Sweden. As the first unit in the power agnostic truck series, known for its adaptability to multiple power sources, the diesel trolley model 930E has begun operating. This marks the world's first deployment of a power agnostic truck operating at an actual mine site. By adopting a modular design on the same machine platform, power sources such as diesel can be replaced with batteries or hydrogen. This enables smooth transition to lower emission power sources like battery electric or hydrogen fuel cells in line with customer needs in the future. This concludes my presentation.

Now we would like to take any questions that you may have. The first question is from Maekawa-san, Nomura Securities. This is Maekawa from Nomura Securities. Thank you very much for the presentation. First question is about page 7, volume product mix, which is 10.3 billion negative. Can you give me the breakdown? This is Horikoshi speaking. For a pure volume, it's minus 5.5 billion. And for product mix and area mix, it's minus 1.7 on a net basis. And there were one-off items, which was worth 3.1 billion minus. And for the 1.7 billion minus, for a product mix, it was negative. related to mining parts. Compared to the previous year, it was down. For era mix, it was contributing positively due to Indonesia and Chile. Compared to last year, we saw an increase. So on a net basis, it was minus 1.7 billion. Thank you. I have two additional questions. The decline in mining for North America, didn't that have an impact on the mix? And you said minus 3.1 billion for one-off factors. Can you give me more detail on that? For mining in North America and its impact, it wasn't that substantial. It was more attributed to mining parts, and that ratio went down. that had a greater impact. For one-off items, there were some customer-related one-offs. And there was a settlement that was reached leading to this cost item. So this is temporary and one-off. So I guess it's not going to be sustained or no additional expenses are not going to be incurred. No, that's not going to happen. My second question is about tariffs. The latest forecast. First, for the inventory part, it has declined Tax rate revision, steel and aluminum, this is not attributed to external factors, I guess. When you crunch the numbers, you didn't have that much of inventory. And the P&L impact this time around, even if the rates changes, it hasn't really changed. So regarding the trends of inventory, can you give us more commentary? This is Horikoshi again. As you rightly said, at the beginning of the year for the inventory that's not going to be impacted by tariffs. After the beginning of the year and after we crushed the numbers, we didn't have as much. So that led to this decrease compared to the April outlook. So if you were to point it out, what part was different? Or were there less inventory that you were able to ship? Can you give me more flavor on that? We're still in aluminum tariff rates. That is going to be imposed. We scrutinized the mix and its contribution. And also we looked at our work in progress inventory at our factories to see what kind of impact they have. So that's how we scrutinized the numbers. Understood. Also, for steel and aluminum, it's going to increase. And for reciprocal tariffs, it's positive and negative. So the remaining portion is the rates between U.S. and China. And I guess the reciprocal tax portion was going to be greater because Japan went down. But regarding the tariffs, still and others, from 140, it went down to 110 billion. But how much do each of these factors contribute? Because then we'll be able to get a better idea. Can you walk us through additionally with numbers, hard numbers? Well, regarding tariffs between US and China, At the time of the April public announcement, we were assuming 145%, but with the agreement reached, it was 30% until August, and from September, 54%. Therefore, this difference is pretty big. Also, for steel and aluminum, this mix It's kind of spread out, so it's hard to pinpoint where, but I would say on a relative basis, it's higher in Japan as well as in China. And for reciprocal path, Japan has the largest impact, and it says it's 13.5 billion under others, but the majority of this is attributed to Japan. So for 13.5 billion plus for terrasan steel and aluminum, 25% went up to 50%. The original 13.5, did it double, go up to 27 billion, and that's why it's up by 13.5? And for reciprocal tax, I assume that it should be around 100 billion, but it's only down by 13.5, and it seems that that's very small. So is that the right way to look at this, volume-wise? Well... But 110 billion, based off the 110 billion, about half of that is associated with reciprocal tariffs. About 30 billion is steel and aluminum. Got it. Thank you.