Komatsu Ltd S/Adr

This is Horikoshi, the CFO. I'll explain the overview of Komatsu's business results for Fiscal 25 Q2. Page 4 shows highlights for the three months ended September 30, 2025. Exchange rates were 147.3 yen to the USD, 171.3 yen to the euro, and 96 yen to the Australian dollar. Compared with the same period last year, the yen appreciated against the dollar and Australian dollar while depreciating against the euro. Net sales decreased by 2.6% year-on-year to 982.1 billion yen. Operating income decreased by 6.7% to 136.7 billion yen. The operating income ratio was 13.9%, down 0.6 percentage points from the previous year. Net income attributable to Komatsu Limited decreased by 8.1% year-on-year to 84.5 billion. Page 5 presents the sales and segment profit of each business segment for Q2 on a 3-month basis. In the construction, mining, and utility equipment segment, net sales decreased by 4.1% year-on-year to 897.3 billion, while segment profit decreased by 11.8% to 119.7 billion yen. The segment profit ratio declined by 1.2 points to 13.3%. The retail finance segment recorded net sales of 30.5 billion, down 2.5% year-on-year, while segment profit increased by 4.9% to 7.5 billion. The industrial machinery and other segment achieved net sales of 63.5 billion yen, up 23.9% year-on-year, and segment profit increased approximately 3.3 times to 9.4 billion. I will explain the factors behind these changes in each segment later. Page 6 presents sales by region for the construction mining and utility equipment segment in the second quarter of fiscal 25. Net sales in the construction mining and utility equipment segment decreased by 4.1% year-on-year to 895 billion yen. In Asia, both mining and construction equipment sales declined due to falling coal prices and reduced public investment in Indonesia, although sales increased in Latin America, Africa, and the Middle East on an underlying basis excluding For an exchange rate impact, total sales decreased by 1.6% year-on-year. Page 7 presents the highlights for the first six months, from April to September of fiscal 25. Exchange rates were 146.4 yen to the U.S. dollar, 166.9 yen to the euro, and 94.3 yen to the Australian dollar. Compared to the same period last year, the yen appreciated against the U.S. dollar and Australian dollar, while depreciating against the euro. Net sales decreased by 3.9% year-on-year to 1,891.6 billion. And operating income decreased by 8.7% to 277.1 billion yen. The operating income ratio declined by 0.8 percentage points to 14.6%. Net income attributable to Komatsu Limited decreased by 12.9% year-on-year to 175.7 billion yen. Page 8 shows the sales and profits by segment for the first half of fiscal year 2025. Sales of the construction mining and utility equipment segment decreased by 4.8% year-on-year to $1,742.2 billion, and segment profit decreased by 13% to $242 billion. The segment profit ratio declined by 1.3 percentage points to 13.9%. Sales of the retail finance segment decreased by 1.3% year-on-year to 61 billion yen, while segment profit increased by 13.9% to 16.9 billion yen. Sales of the industrial machinery and other segment increased by 10.5% year-on-year to 106.9 billion yen, and segment profit rose approximately 2.1 times year-on-year to 16.6 billion. The factors behind the increase and decreases in each segment will be explained later. Page 9 presents sales by region for the construction, mining, and utility equipment segment in the first half of fiscal 25. Net sales in the segment decreased by 4.8% year-on-year to 1,737.2 billion yen. While sales increased in Europe, Africa, and the Middle East, it declined in Asia, particularly in Indonesia, as well as in North America and in Japan. Excluding the impact of FX, Sales decreased by 0.8% year-on-year on an underlying basis. Page 10 shows the factors behind changes in sales and segment profit for the construction, mining, and utility equipment segment in the first half of fiscal 25. Although improved selling prices had a positive effect, the negative impact of FX and lower sales volume outweighed it, resulting in a $88 billion year-on-year decrease in net sales. Despite the positive effect of higher selling prices, the negative effects of FX, reduced volume, and higher costs predominated, leading to a 36 billion yen year-on-year decrease in segment profit. The impact of tariffs for the first half, including mitigation measures, was 7.7 billion. The segment profit ratio declined by 1.3 percentage points year-on-year to 13.9%. Page 11 presents the results for the retail finance segment in the first half of fiscal 25. Assets increased from the end of the previous fiscal year as new contract volume exceeded collections. However, new contract volume decreased year-on-year, mainly due to FX impact. Net sales decreased by $0.8 billion year-on-year, mainly due to FX impact. impact while segment profit increased by 2.1 billion yen year-on-year, primarily owing to lower funding costs. Page 12 presents sales and profit, segment profit for the industrial machinery and other segment in the first half of fiscal 25. Net sales increased by 10.5% year-on-year to 106.9 billion yen. Segment profit was approximately 2.1 times higher than the previous year at 16.6 billion yen, and the segment profit ratio rose by 7.4 percentage points to 15.5%. The increase in both sales and profit was driven by higher sales of large presses for the automotive industry and increased maintenance revenue from high-margin XMR lasers for the semiconductor industry. Page 13 presents the consolidated balance sheet. Total assets amounted to $5,922.5 billion, up $149 billion from the end of the previous fiscal year, mainly due to an increase in inventories. Inventories totaled $1,579.4 billion, an increase of $172.7 billion from the previous year end. The shareholders' equity ratio declined by 0.7 percentage points from the previous year end to 54.3%, and the net DE ratio was 0.29 times. Free cash flow for the first half of fiscal 25 was an inflow of 33.5 billion, limited by an increase in working capital, primarily in inventories. That concludes my explanation.

Next, Ishinoma is going to explain fiscal 2025 business resource projection. This is Hishinuma, GM of Business Coordination Department. Now I'm going to explain the projection for fiscal 2025 business results and the major market overview. Page 15 presents out one projection for fiscal 2025. So we have revised the full year projection. Net sales was revised upward by 143 billion yen from the April 2025 projection and will decrease by 5.3% to 3,808 billion from FY2022. OP was revised upward by 22 billion and will decrease by 23.9% to 500 billion year-on-year. And net income is projected to decrease 27.2% to 320 billion. It was revised upward by 11 billion year-on-year. And there are partial changes in demand outlook, which I will touch upon later. For construction, mining, and utility equipment segment, against the April outlook, due to the demand decline, Mainly in Indonesia, it is projected that there will be a negative impact on both sales and profit. Against that, we are going to partially absorb it by adding sales, applies improvement and the cost improvement from tariff mitigation measures. And fully exchange of major currencies has been moving toward yen depreciation more than originally expected. So taking that into consideration, we have revised four-year business result projection for fiscal 2025. Regarding foreign exchange rates, the sense of third quarter, 140 yen to one US dollar, 163 yen to one euro, and also 91 yen to Australian dollar. And for the four-year ability of X, the 143.2 yen to US dollar, 164.9 yen to euro, and the 22.7 yen to Australian dollar. And the fiscal 25-hour E is projected to be 10.3%. And the cash dividend per share, it is planned to be the same as the previous year, 190 yen, which is unchanged from April outlook. And the consolidated payout ratio is projected to be 54%. Page 16 presents latest estimate of the impact of additional U.S. tariff incorporated into projection of business result revised this time. So based on the U.S. tariff policies and rates that have been disclosed as of October 24, the latest forecast for TALIF, the costs in fiscal 25 is as follows. This does not take into account the impact of additional tariff policy on China announced by US government officials in October. Payment basis is 90 billion yen, which is a decrease of 50 billion yen from the April 25 projection, including cost reduction measures implemented during the period. The impact of the profit and loss is 55 billion yen, which is an improvement of 13.5 billion from the April fiscal 25 projection. So the actual impact on profit and loss, including cost reduction measures for the first half of the year was 7.7 billion yen. The impact is expected to increase progressively toward the end of the fiscal year. Page 17 presents projection of segment sales and profit for fiscal 25. Consumption mining and utility equipment sales will decrease by 6% from fiscal 24 to 3,571,000,000 and segment profit will decrease by 26.4% to 441,000,000. Detail finance sales will decrease by 5% to 117 billion yen and segment profit will increase by 0.3% to 29.5 billion yen. Industrial machinery and others sales will increase by The 6% from FY24 to 237 billion segments profitably increased by 20.5% to 33 billion yen. I will touch upon lesion for increase and decrease for each segment later. Page 18 presents projection for sales by lesion for construction, mining and utility equipment in Asia, core places in Indonesia. continue to sluggish and it is expected that it will not recover for the time being, leading to a significant decline in sales for both mining and construction equipment. Profits expected to increase in the Central and the South Asia, Europe and Asia. due to FX impact, but it will decrease by 6% to 3,559.6 billion in total year-on-year. So on the... The currency basis accruing affects impact. It will decrease by one point year-on-year. Page 19 presents construction mining utility equipment. The causes of difference in projected sales and segment profit for FY2025. Sales will decrease by 227.2 billion yen from FY24 despite the positive effects of improved selling prices due to the negative effects of foreign exchange rates. and decrease the volume of sales. Segment profit will decrease by 157.9 billion from FY24, despite the positive impact of the improved selling prices due to the negative impact from the factory, such as exchange rates, decreased volume of sales, and the increased cost, including the impact of U.S. tariff. And the segment profit ratio will be 12.3%, down 3.5 points from FY24. So page 20 represents retail finance projection. Assets will increase by 42.2 billion yen from the previous fiscal year and due to new investments exceeding recoveries. New contract will decrease by 45.7 billion yen from FY24, mainly due to fully exchange rates. And sales will decrease by 6.2 billion yen from FY24, mainly due to a fully exchange rate. And the segment profit will increase by 0.1 billion from FY24, mainly due to lower procurement cost. And ROA will be 2.1%, 0.1%. point down from the previous year. Page 21 presents industrial machinery and others projections. For the automotive industry, sales of large plus will increase. For the semiconductor industry, sales of the high-margin XM leather maintenance will increase. Sales will increase by 6% to $233 billion year-on-year, and segment profit will increase by 20.5% to $33 billion year-on-year. From page 22, I will explain actual and the projection demand for seven major products under construction, mining, and utility equipment. So demand for mining and machinery is included into demand of the seven unit major products. And the number of FY25Q2 are preliminary based on our estimate. In the second quarter, fiscal 25 demand increased by the 1% year-on-year. This time, we have reviewed FY25 full-year forecast. As of April, taking into a direct impact of a US tariff to put demand downwards, we estimate the impact of 2.7% globally. So, however... As of now, excluding some countries such as Brazil, we do not see clear tariff impact on demand. So for this outlook, we do not have a global day figures. And for that reason, we do have the projection by region. Overall demand is 0.25% negative, which is same as the April projection. However, there is some fluctuation in regional demand. From next page onwards, I will touch upon each region. Page 23 presents demand in North American market. In fiscal 25 second quarter, demand increased by 5% year-on-year. The impact of U.S. tariff policies on demand is unclear, and rental demand, which has been struggling, shows signs of reversal. In FY25, a full year demand will decrease by between 0% to 5% from FY24. It will change from the April 25 projection. So during the first half, North American demand has been stable, but we will be closely monitoring the impact of the increased U.S. tariff costs on demand. Page 24 presents demand in Europe. In fiscal 25 second quarter, demand increased by 1% year-on-year. In fiscal 2025, full-year demand will remain about the same from FY24, which was changed from the April 2025 projection. Economy has been improved due to ECV interest rate cut and the fiscal expansion measure announcement. Also, demand hit the bottom. However, we will closely monitor the situation. Page 25 presents demand in Southeast Asia. In fiscal 25 second quarter, demand decreased by 4% year-on-year. In fiscal 25, four-year demand will decrease by between 5% to 10%, which is changed from the April 25 projection. In Indonesia, which is the biggest market, we see huge demand decrease for both mining and construction equipment due to oil price decline and public works budget cut. We do not expect demand in Indonesia to recover for the time being, so we are going to closely monitor the situation. Page 26 presents demand in Japan market. In fiscal 25 the second quarter, demand decreased by 19% year-on-year. In FY 2025, full-year demand will decrease by between 10% and 15% from FY24, which was changed from the April 25 projection. Demand for Lentol is low. and there is surplus in market population, which brings down the new machine demand. There are negative impact on construction industry due to the lack of manpower, material price hike, demand will sluggish for the time being. However, we are going to closely monitor the situation. Page 27 presents price trends and a projection for major minerals for mining equipment. So as for low-glade coal from Indonesia, its price is on downward trend, but other minerals are expected to be high or stable. Page 28 presents actual and projected demand for mining equipment. In fiscal 25, the second quarter, demand decreased by 13% year-on-year. Coal plies dropped in Indonesia, and demand has decreased significantly. In fiscal 25, full-year demand will decrease by between 10% to 15% from FY24, which was changed from the April 25 projection. We do not expect demand in Indonesia to recover for the time being. However, the demand elsewhere remains steady. Page 29 presents actual and projected sales of mining. In fiscal 25 second quarter, sales decreased by 7.1% year-on-year to 461.9 billion yen, excluding effects on the impact, and sales decreased by 3.9%. In FY25, four-year sales will decrease by 7.5% from FY24 to $1,773.2 billion, excluding foreign exchange impact. sales decreased by 1.6%. For mining equipment, Indonesia has dropped due to oil price drop, but the exclude in Indonesia against April outbreak, sales increased excluding of foreign exchange impact. So for mining equipment and services, in addition to decline in parts in Indonesia, BC customers were gone cost reduction for cost and it will decrease excluding foreign exchange against APO outlook. Page 30 presents construction, mining and utility equipment, actual and projected sales of mining. In fiscal 2025, the second quarter, parts sales decreased by 2.5% year-on-year to ¥260.6 billion. The ratio of aftermarket including service was 53%, excluding fully exchanged aftermarket sales increased by 0.4% year-on-year. FY 2025 part sales will decrease by 4.8% year-on-year to 1 trillion 1.1 billion yen, and aftermarket ratio, including service, is 52%. Excluding foreign exchange impact, the total aftermarket sales will increase by 1.1% year-on-year. So thank you very much. And now I would like to touch upon the second quarter topics starting from page 47. Page 47. Komatsu will establish a new training center in Kodiroa for construction equipment mechanics and operators. This was announced at the ninth etiquette, which was held from 20th to 22nd August. and the completion is scheduled in 2026. Komatsu aims to expand its function to include equipment, stock and parts at depot, as well as marketing capabilities, positioning itself as the core facility for West Africa, and it's going to be expanded to West African customers and distributors and local communities. Page 48. Komatsu and U.S.-based Applied Intuition will co-develop a unified software-defined BeCo, which is STB, an autonomy platform. With Applied Intuition's proven capabilities across BeCo operating system, autonomy, stacks, and tooling, Komatsu's extensive expertise in off-highway autonomy and mining applications The collaboration represents a bold step toward the future of increasingly autonomous software-driven mining operations. By having an autonomous platform leveraging SDV architecture, AI, and machine learning, the productivity of the mining field can be dramatically improved, and we can provide higher values to the customers, including equipment downtime reduction and also the highly precise and efficient operation. Page 49. Komatsu and its subsidiary, Earthplane, have entered into a collaboration with Tier4, a pioneer in open-source software for autonomous driving, to develop autonomous technology for construction equipment. These three companies allow the The collaboration of three companies will focus on autonomous operation Komatsu articulated and rigid dump trucks for CBO engineering and quarry sites in Japan aiming for practice use by fiscal year 2027. Page 50. On September 19, Komatsu issued the integrated report Komatsu Report 2025. So this report introduces our management policies and corporate activities aimed at sustainable enhancement of corporate value over the mid to long term with a focus on the new three-year medium-term management plan, LEANAME, strategic growth plan with the title of Driving Value with Ambition. Please take a look at it. That's it from myself.

Now, from here on, we would like to take any questions that you may have. Thank you very much for that presentation. This is Sasaki from UBS Securities. I have two questions. My first question is regarding numbers, regarding volume mix and cost impact. Do you have more detailed plans for this in the new plan, the revised plan, compared to the beginning of year plan for volume and mix, it was revised down substantially by $78.5 billion. But what was the reason why it was revised down so substantially? That's my first question. This is Horikoshi. Thank you for your question. First, looking at page 10 and first half results, For a volume and mix, $27.8 billion is what you see here. And for pure volume, it's $19.3 billion. And other than that, for a product or an area mix impact, it's $6.4 billion, and it's likely to deteriorate. And there's one-off cost worth $2.1 billion. which adds up to 27.8 billion. For area and product mix, the reason why it's deteriorating by 6.4 billion, and it's about half and half of a breakdown, but for area mix, it's because of Indonesia and its sales has been falling and it's a high margin market. And conversely, margins are not as good in Europe, but its mixed contribution is increasing. That's the reason why area mixes deteriorating. For product mix, especially regarding mining equipment, the parts ratio has been falling and out of equipment, the low margin products have sold more in the first half of the year, which was also a negative factor. So that was the first half. Regarding our expectations, Looking at page 19, on an year-over-year basis, $82.8 billion is the negative impact from volume and product mix, et cetera. Period volume impact is minus $40.8 billion. Product mix, area mix are going to be are in total $36.5 billion negative and also one-off costs $5.4 billion, which adds up to $82.8 billion. For product and area mix, which is a large number, the reason is attributed to the same reasons as the first half and is likely to expand. And compared to the April PA, the public announcement, we're talking about our projection on an annual basis, right? On an annual basis. Compared to the difference between the public announcement in April for sales, it's about $130 billion of a difference. It's worse by $130 billion, out of which fx is better second half assumptions are now 140 yen so it's a positive factor by 220 billion but conversely for volume we are expecting a decline in the order of 100 billion so that amounts up to 130 billion of a sales improvement compared to the April public announcement but for the P&L for the P&L compared to the April public announcement it's better by 13 billion out of which FX impact is about 75 billion and pure volume impact is about 36 billion of a negative which is equivalent to that $100 billion. And for mixed difference, for product and area, this is big, $42.5 billion. And tariff measures, price increase impact is about $10 billion positive. And for costs, it's about 12.5 billion positive. This is mainly due to tariffs have increased, therefore we were able to incorporate strong countermeasures. So net-net is $13.5 billion, and other costs are $11 billion. So on a net-net basis, it's $12.5 billion better. For fixed costs, compared to the beginning of the year, it's going to be less. So it's $13 billion better than the April public announcement, therefore. Indonesia, which is relatively higher margin, it has deteriorated. So it's not just sales volume decline, but it has also led to mix deterioration as well. Is that the right way to look at it? Yes. Area mix has deteriorated. This is attributed pretty much solely to Indonesia and also Europe conversely improved. So net-net area mix deteriorated. Thank you very much. Then let me move on to my second question regarding Indonesia. For mining and construction equipment, what kind of things are happening on the ground? Can you give me more detail on that? For example, what are the conditions of the customer? What are they saying to you? And for mining, the idle rate, I believe, is increasing. So can you talk about the background as to why sales is deteriorating by explaining about what's happening on the ground there? That's my second question. This is speaking. Regarding Indonesia, starting off with construction equipment for forestry. It hasn't really deteriorated demand-wise in agriculture, but construction equipment demand has been deteriorating. Public works budgets, compared to our initial assumptions, have become lower and stricter. It's probably due to policy. They are actually allocating more to making school lunches free. And that is why they decided to cut public work project budgets, which has had, in turn, an impact on our construction equipment demand. As for mining, like we've been communicating from before, the 4,200 kilocalorie thermal coal prices, there is a strong correlation in the market. That's what we've been explaining from before. And prices are quite sluggish, as explained, at $42 or $43 a ton. about a year ago. It used to be about $52 or $53. So price levels have been coming down quite substantially. So customer profitability has been deteriorating. So that's hard, but we may have communicated this at Q1 results, but regarding cost for biodiesel policies, B35 has been revised up to B40. So that has been leading to higher prices and worsening fuel efficiency. So operation cost is increasing. Also, regarding royalties that you need to pay to the government has been increasing as well. Therefore, profitability for the customer has been deteriorating. And that is why mining Japan is likely to be sluggish for a while going forward. How about the idle rate? Do you have any numbers on that? Well, we only have numbers up until August, but it was 9.6%. So compared to before, it has been deteriorating. It used to be about 8% in Q1, I believe. Got it, thank you very much.

Thank you very much. We are going to take the next question. Mr. Maekawa from Nomura Securities. This is Maekawa from Nomura Security. Thank you very much for your explanation. I am going to ask two questions. My first question is about the tariff cost and also your measures against it. That is my first question. As you can see on the page 16, there is the 50 billion yen mitigation, and I'd like to know what specific measures you're going to have. And also the Ligurian steel and aluminum. I think there was the impact on the August, during the August on the end. And I first of all do like to ask about cost. So now we are having more the measures. regarding the tariff cost excluding april 77.5 billion however this time the uh we are projected to be 80 billion and the for the the mitigation or the improvement and for april that we were projected to um have it as the 10 billion however now that we are accumulating this to the 30 And there is the $8 billion more, the tariff. And for the measures, we are going to have about $20 billion additional. And again, there is the cost, the difference or the cost gap. I said that it's improved, and that's where we have gains. And for the improvement measures, what specific measures we have? First of all, as it was mentioned in April, there is a procurement or the source of procurement are going to be changed and US, Canada and Mexico They have the treaties among these countries, and especially for steel and aluminum tariffs, we are going to expand where the treaties will be applied. That is one of the measures, and regarding the steel and aluminum. If we do nothing and it's going to be 50% so that we are going to the look at the accolades on the number about The the content and so that is what we are going to do So the wording increased the numbers on the was it mainly because of a still when our minimum yes and And there is a price increase. So you talked about the increase of the sales place. However, I was wondering if you're going to have the further increase of the sales price, or how do you see the competitors move, especially in the US market? As I mentioned in April, starting from August, there's a 40% price up in the States. And compared to April public announcement, we do see the difference for that reason. However, there are some negative numbers, so meaning that there is a slight decline from the number we originally had. And regarding what competitors are doing, So competitors are increasing their prices and the U.S. companies for the time being. we have not heard that they are increasing their prices. In 2022 and 2023, they had the big price increase, which was more than 10%. And from the second half of the 24, actually they are now going to, they are decreasing the price. And during that period, we really didn't have much price increase. So probably we still have the room for a price increase. So that's why we have executed that this August. And for this projection regarding the US for construction, actually we have revised the sales upward. And we look at the current situation. And from the physical beginning, especially for the second half, We were projecting that we will have the downward trend. However, probably that is not going to happen. And for the construction, especially in the States, we are going to project the upward revision. And I have one additional question related to that. So other companies are doing the strong in North America. However, they had a very the last minute the price increase. And do you have the same concern or do you think any improvement in North American market? So as we mentioned, when we talked about projection, so we are now the having the upward demand projection in North America, meaning that the current situation is not that bad. Regarding the flea cash flow and the cash allocation or the share buyback, I would like to ask some questions. Regarding the flea cash flow, 240 billion yen is projected. And for the total, I remember that the number given was 320 billion. So I feel like it was revised downward. For the cash allocation, is there any other things that we should take into consideration? Or is there anything we have to look at? 240 billion yen is the number we gave in July. And from July projection, we have the same number. And there are two reasons for this. So first of all, there is the inventory asset. The tariff impact is bigger than we projected in April as that was incorporated for this number. And for sales, especially for mining, as there was the difference of timing, especially for the second quarter, and there is going to be a big sales, especially from the central and the south state America. So if it will be delayed, we will not be able to have, we will not be able to realize the recovery. So that is why we see decline. So, having said that, there is not the huge decline and there is nothing we really should pay attention regarding the cash allocation. Yes, this is just the delay or the difference of the timing and there is no change in cash allocation. Okay, thank you very much.

Thank you. Let's move on to the next question. From Jefferies. Fukuhara-san, please. This is Fukuhara from Jefferies. Thank you very much for your time today. My first question is regarding slide 28. Regarding demand in Indonesia, it says that it's not going to recover for the time being. Are you talking about until the end of this fiscal year, end of March, or is this going to persist going into next fiscal year as well? So can you talk about the demand environment in Indonesia? Is this year going to be a bad year? But are you expecting a pickup next fiscal year? That's my question. This is Hishin Uma speaking. Well, our outlook applies to this fiscal year end. Regarding our outlook for next fiscal year, it's hard to say at this point in time, but for coal in Indonesia, the impact from China is quite substantial. So China with production within the country increasing, they have been reducing the amount of imports. However, if there is a turning point, once again, where they import more, and I think that depends on prices as well, then that will impact Indonesia. However, like explained in the presentation regarding cost. Costs have been running up higher so if there's a policy change regarding royalties that I explained earlier that should be a positive but we'll need to scrutinize the details going forward. So in other words This is impacted by the external environment. It's not really due to your company's competitiveness, or should we be concerned. Regarding product competitiveness, dump trucks from China may gradually come into the market, but when you look at the overall big picture, we don't believe its impact is going to be that substantial. Okay, I see. My second question is about page 45. What caught my eye is KMC. When you look at the chart, it is looking upwards. If it's possible for the demand for an order taking situation for underground mining, have you been seeing any changes? We haven't been seeing any major changes, so the environment hasn't really deteriorated. Well, it may look low, but it doesn't mean that the environment has deteriorated. Understood. Thank you.

Thank you. We are going to take the next question. from Goldman Sachs. This is Adachi from Goldman Sachs. I have two questions. My first question is regarding the cash flow. So you talked about a four-year projection and for the sales cash flow, the $410 billion and for the first half, $130 billion. And I would like to see what this project to be improved during the second half. This is Horikoshi speaking. The first of all, there is the inventory asset. And as you can see, when you look at the balance sheet, the inventory asset compared to the end of the March, it's increased by 170 billion. And excluding U.S. dollars, there is the base credit depreciation of the yen. And toward the end of the year, we are going to decrease this. And that is going to be effective. And for the operating capital, that will be effective. Okay, thank you very much. Just to follow up, When you look at the cycle in the physical beginning, I believe that the situation was stabilized in North America. And when you look at the calendar situation, there will be more impact from the second half. And I feel like now you're in the phase to expand production and inventory. However, at the same time, I feel like looking at the situation for the mining equipment, you're going to decrease it some. So I would like to look at what you're going to decrease. So when we talked about actual first half, I talked about comparison against April public announcement. And there's around 100 billion volume difference, which was declined from April. And for the construction equipment, around 10% was, excuse me, 10 billion was unachieved, and only 90 billion was negative. And among 90 billion, the 40 billion can be accounted to the Indonesia and also the North America as well. So there is the... the the difference of the equipment and also the coal price drop and also the overhaul with the light so which is around 30 billion from the north america and looking at the central and south um the america uh there's the um the the timing difference, which is around the $10 billion. So it's going to be up to $90 billion. This is for the first half. And when you look at the full year, $100 billion was achieved. And for the full year, it's around $20 billion unachieved. And when you look at the breakdown, Indonesia accounts for the same or the higher compared to the first half. And for North America, we are expecting to see significant improvement. Oceania, there is the easing of the housing policy. And from 2023 June, we have been seeing continuous decline. However, now we are seeing the improvement of the situation. So for the construction equipment, as you say, the situation is actually not that bad. However, mining, 90 billion was unachieved during the first half and 80 billion is going to be the unachieved full year. And from Indonesia, 100 billion yen is going to be unachieved. And for Central and South America, it was the 10 billion unachieved in the first half. However, for the second half, it's going to be 40 billion overachieved. And for North America, During the first half, 30 billion unachieved. However, we are going to see the slight recovery from that number. So for the construction equipment, I'm not sure. However, mainly this is because of mining. Thank you very much. My second question is about tariff. I would like to ask about the next fiscal. So as much as you can answer, I would like you to answer. So now the 500 billion and the 35 billion inventories. So as much as you can say, what will be the number for the next fiscal? So this year, the cost was $8 billion net, or it's $55 billion net. And this is, we are projecting to see as a cost. And for the payment basis, it's around $90 billion. And during the fiscal beginning, as the inventory asset, which do not get the tariff impact, And that is why the number is a little bit mitigated. However, for the next fiscal, we are not going to have the impact of the inventory asset. And during the fourth quarter, there's going to be the payment basis, which is basically the same as DPL. And that will be four times bigger. So it's just a rough estimate. However, the payment, the basis, which is equal to the PL, is going to be 120 billion. Thank you.

Thank you for your question. So now we'd like to take questions over the phone. From the Nikkei Kuzesan. This is Kuze from Nikkei. Thank you very much for taking my question. Do you hear my voice? Yes, we do. Thank you. I have two questions. First question is about, you talked about margins being better in Indonesia compared to Europe. Regarding this difference of margins, is this because of the difference in the competitive landscape? and for Europe, are there any signs of margins improving or any measures you're implementing in order to improve profitability? Regarding Indonesia, We have a strong partner or distributor there called United Tractors, UT, and we sell through them, especially for mining equipment. Fortunately, our market share is very high, so we have a competitive advantage leading to a relatively higher margin. Thank you very much. For Europe. Should we expect any changes in profitability or not really? This is Ima Yoshi speaking. For Europe, originally it's mainly a construction equipment market and competition is pretty tough. So compared to other regions, structurally profitability is lower on a relative basis. Thank you. My second question is about Latin America. You revised up your expectations there. When I look at your financial statements, you were talking about an improvement in copper demand. Regarding tariff impact on demand, is that the case where tariffs didn't really have that much of an impact on demand? This is Horikoshi speaking. In Latin America, conditions are better in regions like Chile. Or actually, Brazil has deteriorated, and also Mexico and Peru. Those are the regions that have been decelerating. And Brazil's impact is quite large. However, Chile is doing better. Ecuador as well. And Colombia. Or Chile. Initially, when copper is to be imported into the U.S., we were concerned that tariffs were going to spring up, but that's not the case. Copper from Chile is 99% refined, therefore that is not subject to tariffs. So regarding copper production in Chile, as well as demand for mining equipment, tariffs did not have an impact. Thank you very much for that. Recording tariffs not being imposed on what you explained about Chile, is that included in the mitigation measures? We originally did not account for it, so no, it's not included. Thank you. For Brazil, it has been receiving tariff impact and leading to a demand decline. Is that what you were explaining? Brazil is facing other circumstances for Brazil and Canada. This is where U.S. tariffs are expected to increase, or at least that has weighed on customer sentiment, leading to a demand decline. I see. Thank you very much. That's all for me.

Okay, now we are taking the next question from the floor. Attorney Naka-san from SMBC. I'm Taninaka from SMBC Nickel Securities. so you're not going to expect recovery in Indonesia for the time being. I'd like to learn more about it. Now, US$50 is the core price, and the mining demand is around 2,000 units. However, when we go back to 2017 or 2018, I think it was around 100 units. And for the construction equipment, it is around 1,500. However, in the past, it was around 800 units. And if the price level continues, do you see that there is a risk that the volume will go down to the level of 2017 and 2018? Or do you see a certain level of renewal at demand? And the 3,000 to 3,500 units, do you see this is the demand trend moving forward? First of all, regarding mining in Indonesia, coal was primarily the material. However, this is highly correlated to the price of coal, and if it drops, then a contractor will not purchase it. Then there is another variable, which is overhaul timing. So based on our experience, overhaul is once in six years. And the renewal timing was around 2020, so I would like to see how it is at impact. Thank you. My second question is, There's mining equipment and the after service, which I'd like to learn separately. So for the equipment, there is the demand worsening or the timing difference. And I'd like to ask about after service. So the operation rate of the equipment at the mining and how does it support the mining mining in general and is it going to recover from next year? I'd like to understand a trend. So do you have any data of the usage, the rate or the operation rate at the customer's site? Regarding mining, there is equipment, parts and others. And the parts are mainly from Indonesia. However, there are call-related customers. And they are getting weaker than we expected. And for general service, there is no change. Thank you. That's it for myself.

Thank you. Are there any other people from the venue who has additional questions? from Bloomberg, please. This is from Bloomberg. I just have one question. Maybe a big picture question, but President Trump was in Japan. And $60 trillion into AI and energy infrastructure was being talked about with many companies being a part of this initiative. So when it comes to infrastructure investment in the U.S., digging and filling is probably likely to increase in the future. So towards next year, are there any upside expectations you have for the U.S. market for next year? Well, housing and non-housing commodities is how we break up the U.S. market. And where there are investment projects, demand in the non-residential segment increases and picks up. But this is something we'll need to wait and see. We're not really sure about next year yet. Thank you. That's all from me.

And I'd like to take the next question from participants on the call. McDonaldosan from City. Do you hear me okay? Yes. Just to confirm. So, In answering the previous questions, Horikoshi-san mentioned that the tariff impact will be four times. Did you say 120 billion yen? Yes. And for this year, it's going to be around 55 billion yen. Yes. And for this year, As I mentioned in the beginning of the explanation, the 7.7 billion net for the first half and the 55 billion yen full year, meaning that the third quarter and the fourth quarter are reaching toward the end of the fiscal and we are going to see bigger impact. And before the fourth quarter, the mitigation impact of inventory assets will go away and the numbers of the fourth quarter, if you multiply that four, then you will be able to have the four-year number for the next year. So regarding the mitigation measures, such as the price increase or procurement or the change of the suppliers, then all of these included, with the worst scenario, you're projecting 120 billion yen. Is that correct? Taking mitigation measures into account, obviously, current measures we have, the number is going to be $120 billion. However, every year, of course, we do have the regular price increase, which we are going to have the next year as well. And it's about how much we'll be able to absorb. And I think it's the same as what we explained in our July announcement. So this May at the various meetings, U.S. production or the plant construction, there are many discussions going on, but basically you are not going to make any reinvestment, right? You do not have any plan to expand your U.S. factories, right? So in the past 14 years, 300 million is what we make as the investment into our facilities, and we are going to continue that. Do you have any plan to expand the local production in the States? We would like to expand that as much as possible. Okay, thank you very much.

Thank you. I think there was another person in this room. Yes, once again, we'll go back to Sasaki-san from UBS. Thank you for choosing me again for the second round. I have an additional question. Regarding construction equipment demand in the U.S. and Europe, you were saying that it's picking up. So can you talk about the reasons why we're seeing a pickup in construction equipment demand by region? First, for Europe, public works budgets are available in Europe. So we're just saying that it's a bottoming out of demand rather than a pickup. But that's a positive. For the U.S., we have been giving out explanations already. The impact from tariffs haven't really had a negative impact on the market itself. The market is not that bad, and we are expecting investments to take place, and that's why we believe things are looking upwards. However, tariffs have not been completely locked in. yet, so we'll need to pay close attention to the market. For the U.S., regarding residential and non-residential infrastructure as well as rental, what are the colors or how do you view the conditions for each segment? Well, for the first half, rental clearly has been improving. transfer double-digit declining for rental until last year, but for the first half of this year, Q1 was down, but Q2 was up by 11%, so rental is doing very well. Also, energy-related, this too turned positive in the first half of this fiscal year. For non-residential as well, such as AI-related, PowerGen facilities, I presume. It wasn't doing that bad. It was trending positively, but positive trends persist. So all in all, residential is slightly weak, but apart from that, All segments are becoming better than before. Thank you. I'm sorry for going on, but for residential, are you seeing any pickup due to the rate cuts or no? As of now. If you look at page 23, where we show housing starts, it doesn't look like it's picking up. Got it. Thank you very much. Thank you very much for taking my question.

So we'd like to take the next question from phone call participants. This is Tai. Thank you very much. Probably I should ask this question separately. However, regarding the results and the plan of Indonesian sales, Probably, now you will be able to disclose that information, but is there any numbers you can disclose as of now? So we have already disclosed the numbers related to Asia. And regarding Indonesian figures, it's about half or slightly less than half. I do not have specific numbers with me, but it's just about half of Southeast Asia. What page was it? I think it's page 25. If you look at page 25, demand, the Indonesian percentage is quite high among Southeast Asian countries, so Indonesia is pretty big. Okay. So you spent quite a lot of time to talk about Indonesia. However, you do not have specific numbers for Indonesia. And that is what I really wanted to understand more. And I feel like that we have to have ask this question later. And that is why we wanted to have some figures related to ourselves. But anyway, then I would like to ask the numbers of cost difference. between plan and actual. And I think there's some tariff impact as well, which is smaller than that, smaller, around 10 billion from the fiscal beginning. So could you please give us the explanation about this? So starting from first half, 1.13 billion is about the cost difference. And as I said, there is the tariff on the impact of 7.7 billion yen. However, there are some... the materials, which has the price that decrease. However, there's the tires or the human resources and the impact and the all in all, it's the 13 billion yen for the first half. And if you look at the full year on page 19, 64.1 billion yen negative and the 55.1 billion yen is the tariff impact. There is increasing tariff cost, and now we have the 30 billion size of the tariff measures, and that number is included into 55.1 billion yen. And there is the tires, or the human resources cost of power, the suppliers, and there is around the 10 billion yen. So this is going to be my last point for the next year. As Mark asked the question, additional $40 billion, excuse me, the $70 billion increase meaning that when we look at the numbers, it's going to be around $430 billion. And of course, there is a discussion about aiming to achieve the $3 trillion and such. However, for the next year mitigation measures, I would like to learn more about your potential, the action. So this is increased net base, which it seems that there is nothing more that you can do. So how do you see the situation? This is Imayoshi speaking. And as Horikoshi explained, 120 billion yen is a number we have for the next year, which does not include applies increase. Price increase is not only due to the tariff, but we are going to make efforts to increase price not only in the States, but also other areas. And there is tariff negotiations still going on between other countries. We have to monitor the situation carefully and how to mitigate tariffs. So in addition to the measures that we have this year, we have been working on mid- to long-term measures, which we are expecting to see certain impacts. And of course, we have to have company-wide cost reduction, and we will see what does well, but will be the impact overall. So as it was mentioned that the caterpillar really didn't increase the price. And for Komatsu and Hitachi, I think no one really doesn't see whether you will be able to increase prices. And there's a strategy difference. And when you look at the reactions from the dealers, do you see any difference? So Caterpillar is not going to increase the price and under such situation, do you think you will be able to increase your prices? So we just have a price increase and we just sold this Atari situation and we are going to look at the retail situation as well. Thank you very much.

Thank you. Any questions, additional questions from the floor? If not, this concludes today's meeting. I'd like to end the fiscal 25 Q2 business results briefing. Thank you very much for watching and attending.