Komatsu Ltd S/Adr

I am Hiroshi Hosotani, CFO. I will now provide an overview of the business results for the fiscal year 2025. Page 4 shows the highlights of business results for fiscal 25. Foreign exchange rates were 150.5 yen to the US dollar, 173.8 yen to the euro, and 99.2 yen to the Australian dollar. Compared to the previous fiscal year, the Japanese yen appreciated against the US dollar and Australian dollar, but depreciated against the euro. Net sales increased by 0.7% to 4 trillion 132.8 billion yen. Operating income decreased by 13.7% to 567.3 billion. The operating income ratio was 13.7% down 2.3 points. Net income attributable to Komatsu decreased by 14.4% to $376.4 billion. Net sales reached a record high for the fifth consecutive year. ROE was 11.3%, down 2.9 points from the previous year. we plan to pay an annual cash dividend of 190 yen per share, the same as the previous year, resulting in a consolidated payout ratio of 45.9%. Page 5 shows segment sales and profits for fiscal 25. Net sales in the construction mining and utility equipment segment increased by 0.2% to 3,806,000,000. Sales exceeded the projection announced in October as demand was higher than expected. Segment profit decreased by 18% to 491.1 billion yen. The segment profit ratio was 12.9%, down 2.9 points. Retail finance sales increased by 2.4% to 126.1 billion yen. Segment profit increased by 24.4% to 36.6 billion yen. Industrial machinery and other sales increased by 6.8% to 238.8 billion yen. Segment profit increased by 38.5% to 37.9 billion. I will 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 for fiscal 25. Sales to outside customers for the segment increased by 0.2% to $3,796.1 billion. Details of regional changes will be explained by mining and construction equipment respectively on the following pages. Page 7 shows the sales by region for mining equipment within the segment for FY25. Mining equipment sales decreased by 0.6% to $1,904.4 billion. In Asia, sales decreased due to a decline in demand following low coal prices in Indonesia and demand decline. However, sales increased in Africa and Latin America where demand for copper mines remained strong, keeping overall sales flat. Page 8 shows the sales by region for construction equipment within the segment for fiscal 25. Construction equipment sales increased by 1.1% to ¥1,891.7 billion. In real terms, excluding FX impact, sales increased by 0.2%. In Asia, sales decreased as it took time to adjust distributor inventories in Indonesia. Sales increased in North America driven by demand for infrastructure, rental, and energy, and in Europe, where infrastructure investment is on a recovery trend. Page 9 shows the causes of difference in sales and segment profit for the construction, mining, and utility equipment segment for fiscal 25. Sales increased by 7.8 billion yen as price improvement effects outweighed the negative impact of decreased volume. Although we focused on improving selling prices, segment profit decreased. The negative effects of decreased volume, product mix, and higher costs due to U.S. tariffs and production costs outweighed the price improvements, resulting in a 107.8 billion yen decrease in profits. The segment profit ratio was 12.9%, down 2.9 points from the previous year. The impact of tariffs in fiscal 25 amounted to 64.2 billion. Page 10 shows the performance of the retail finance segment for fiscal 25. Assets increased by 238.3 billion from the previous fiscal year end due to an increase in new contracts and the depreciation of the yen. New contracts increased by 75.8 billion, mainly due to higher finance penetration in North America and Europe. Revenues increased by 2.9 billion yen, mainly due to an increase in outstanding receivables. Segment profit increased by 7.2 billion, mainly due to lower funding costs. Page 11 shows the sales and segment profit for the industrial machinery and other segment for fiscal 25. Sales increased by 6.8% to $238.8 billion. Segment profit increased by 38.5% to $37.9 billion. The segment profit ratio was 15.9%, up 3.6 points. For the automotive industry, sales of large presses increased. For the semiconductor industry, sales and profits increased due to higher maintenance sales of Eximer lasers with high profit margins. Page 12 shows the consolidated balance sheet and free cash flow. Total assets reached ¥6,423.9 billion, an increase of ¥650.4 billion, primarily due to the impact of the yen's depreciation. Inventories increased by ¥2. 195.2 billion to 1,601.9 trillion, affected by both the weak yen and U.S. tariffs. The shareholder's equity ratio was 54.7%, down 0.3 points, and the net DE ratio was 0.26 times. Free cash flow for fiscal 25 was an inflow of $249.7 billion, a decrease of $56.8 billion from the previous year. From page 13, I will explain the progress of the strategic growth plan. The current strategic growth plan, Deriving Value with Ambition, which started in fiscal 25, set three pillars of growth strategy. create customer value through innovation, drive growth and profitability, and transform our business foundation. Under create customer value through innovation, we began operating a power agnostics truck at a copper mine in Sweden as part of our efforts to address various power sources. We also conducted a POC test of a hydrogen fuel cell powered hydraulic excavator at a highway construction site in Japan. As part of our efforts for advanced automation and remote control, we are advancing the development of SDVs for next-generation mining equipment in collaboration with Applied Intuition. We are also promoting the practical use of autonomous driving technology for construction equipment through collaboration with Tier 4. Next, under Drive Growth and Profitability, we received the first major mining equipment order in the Middle East for the Rekadik Copper-Gold project in Pakistan. We began deploying AHS in the U.S. and delivered the 1000th unit globally. We will also strengthen our remanufacturing business through the acquisition of SRC of Lexington in the U.S. We have initiated the establishment of a training center in Cote d'Ivoire and will work to strengthen our marketing and service capabilities in the Africa's region. Lastly, regarding Transform Our Business Foundation, in addition to embedding risk management through ERM and strengthening our supply chain through cross-sourcing and multi-sourcing, We accelerated human resource development for innovation and business transformation through the utilization of AI and digital transformation. We succeeded in improving scores in our employee engagement survey. Also, our global brand campaign led to high recognition at international creative awards. Page 14 shows the achievement of management targets in the strategic growth plan. Net sales for fiscal 25 increased by 0.7% year-on-year as the improvement in selling prices offset the decline in sales volume. On the other hand, profit decreased year-on-year as the negative impacts of volume reduction and cost increases outweigh the effects of price improvements. Regarding management targets, in terms of profitability, the operating income ratio for fiscal 25 was 13.7%, a 2.3 point decrease from the previous year. Despite efforts to improve selling prices, the results were significantly impacted by volume decline, inflation-related cost increases, and higher costs due to U.S. tariffs. In terms of efficiency, ROE was 11.3%, achieving our target of 10% or higher. For the retail finance business, we achieved our targets for both ROA as well as the net DE ratio. Regarding shareholder returns, we expect to maintain a consolidated payout ratio of 40% or higher. Also, we executed the repurchase of 100 billion yen of our own shares. Regarding the resolution of social issues, we have set 30 KPIs and progress in fiscal 25 has been broadly in line. Among these, for the reduction of environmental impact, we achieved our target for CO2 reduction from production ahead of schedule. Reduction of CO2 emissions during product operation and the renewable energy usage ratio are also progressing largely as planned. That concludes my presentation.

With that, fiscal year 2026 forecast of the business, and that will be explained by Mr. Hishinuma. This is Hishinuma, the GM from Business Coordination Department. I would like to work you through our forecast for fiscal year 2026 and our primary markets. Page 16 summarizes the impact of the situation in the Middle East and the U.S. tariffs, as well as the underlying assumptions that have been factored into the fiscal year 2026 earnings forecast. And then the fiscal year 2026 forecast incorporates items for which estimates can be made based on information available at this time. Regarding the situation in the Middle East, assuming the turmoil in the Middle Eastern countries and soaring oil prices and supply chain disruptions will continue throughout the year. We have factored in a decrease in sales of 90.1 billion yen and an increase in costs of 18.8 billion yen. However, regarding the impact on production due to shortages of crude oil derived materials, while there is a risk, the situation is unclear at this time. Therefore, it has not been factored into the fiscal year 2026 outlook. Now onto U.S. tariffs. Based on assumptions, Section 122 additional tariffs will apply throughout the year, and the revised steel and aluminum tariffs will apply from April 6 throughout the year. We have factored in additional costs of 67.8 billion yen. However, we have also factored in 30 billion yen in refunds, resulting in a net cost increase of 37.8 billion yen. Page 17 provides an overview of the outlook for fiscal year 2026. We anticipate exchange rates of 150 yen to the U.S. dollar, 170 yen to the euro, and 106 yen to the Australian dollar. We project net sales of 4,118,000,000 yen, a 0.4% year-on-year decrease, and operating income of 508,000,000,000 yen. a 10.5% year-on-year decrease. Net income is projected to be 318 billion yen, a decrease of 15.5% year-on-year. Furthermore, at the Board of Directors' meeting held today, a resolution was passed to repurchase Treasury stock up to a maximum of 100 billion yen, or 25 million shares, and to cancel all repurchase shares during fiscal year 2026. ROE for fiscal 26 is projected to be 9.1%. The dividend per share is planned to be 190 yen, the same as previous year, and a consolidated dividend-payer ratio is projected to be 53.8%. In addition, when the 100 billion yen share buyback announced today is included, the total payer ratio is projected to be 85.4%. Page 18 presents the revenue and profit forecast for each segment. Revenue for the construction, machinery, and mining equipment and utility segment is expected to decrease by 0.4 percent year-on-year to 3.79 trillion yen, while segment profit is expected to decrease by 10.4 percent to 440 billion yen. Revenue for retail finance is expected to increase by 1.1% year-on-year to 127.5 billion yen, while segment profit is expected to decrease by 1.6% to 36 billion yen. Revenue for industrial machinery and others is expected to increase by 0.1% year-on-year to 239 billion yen, while segment profit is expected to decrease by 2.5% to 37 billion yen. We'll explain the factors behind the change in each segment later. Page 19 presents a regional sales forecast for the construction equipment and utility sector for fiscal year 26. Sales of this segment are projected to decline by 0.5% year-on-year to $3,778.2 billion. Details of the year changes by region are provided on the following pages, broken down by mining machinery and general construction machinery. Page 20 presents the regional sales forecast for mining machinery within the construction equipment and utilities segment for fiscal year 26. Sales of mining equipment are expected to decline by 2.4% year-on-year to 1,858.5 billion yen. Sales are expected to decline in Asia and the Middle East due to sluggish demand for coal and the impact of the situation in the Middle East. In North America and Oceania, demand is expected to decrease as mining companies complete their equipment renewal cycles, leading to a decline in sales. Page 21 shows regional sales forecast for general construction equipment within the construction equipment and mining equipment utility segment for fiscal year 26. Sales of general construction equipment are forecast to increase by 1.5% year-on-year to 1,919.7 billion yen, while sales expect a decline in Middle East and Asia due to regional situation. Overall sales of regenerative construction equipment are projected to increase year-over-year, driven by growth in North America, where demand for infrastructure energy projects remains strong, and in Latin America, where public investment is robust. This page outlines the factors contributing to the projected changes in sales and segment profit for this segment. Although we are striving to improve selling prices, sales are expected to decrease by 16 billion yen year-on-year due to a negative impact of lower sales volume. caused by situation in the Middle East. Segment profit is expected to decrease by 51.1 billion yen year-on-year. Although we will strive to improve selling prices, this is due to the negative impact of lower sales volume, the expanding impact of tariffs, and the rising procurement cost. The segment profit margin is expected to decline by 1.3 percentage points year-on-year to 11.6%. Page 23 presents the outlook for retail finance. Assets are expected to increase by 23.6 billion yen compared to the end of the previous fiscal year as new lending exceeds collections. New lending volume is expected to increase by 5 billion yen year-on-year as we anticipate a high utilization rate continuing from the previous year. Revenue is expected to increase by 1.4 billion yen year-on-year primarily due to an expansion in outstanding loan balance. Segment profit is expected to decrease by 0.6 billion yen year-on-year, primarily due to higher costs. ROA is expected to decline by 0.1 percentage points year-on-year to 2.3%. Page 24 presents the sales and segment profit outlook for industrial machinery and others. Sales are projected to increase by 0.1% year-on-year to 239 billion yen, while segment profits are expected to decrease by 2.5% year-on-year to 37 billion yen. In the semiconductor industry segment, sales are expected to increase due to customers ramping up production amid a market recovery. However, for the automotive industry application, revenue is expected to rise, while segment profit is expected to decline due to factors such as decreased sales of large presses and automotive battery manufacturing equipment, as well as rising procurement costs resulting from the situation in the Middle East. The segment profit margin is expected to decline by 0.4 percentage points year-on-year, to 15.5%. Starting on page 25, we will explain the demand trends and outlook for the seven major construction equipment categories. The demand figures for the seven major construction equipment categories include the mining equipment. The figures for the fiscal year 25 are preliminary estimates based on our projections. Demand for fiscal year 25 appears to have increased by 5% year-on-year. For fiscal year 26, we anticipate a year-on-year decline in demand, ranging from 0% to negative 5%. In addition to decline in demand in Indonesia, We expect a decrease in demand in Middle East and neighboring countries due to the deteriorating situation in the region. Page 26 outlines the demand trends and forecasts for the North American market. Demand for the 2025 fiscal year appears to have increased by 3% year-over-year. Demand remains strong in sectors such as data centers and other infrastructure, rentals, and energy. The demand forecast for the 26th fiscal year is expected to remain on par with the previous year. We anticipate the infrastructure and energy sectors will continue to drive demand as we go forward. Page 27 shows the demand outlook and demand for European markets. The demand units for 2025 fiscal year is expected – was expected to increase by 4 percent previous year. And the demand outlook for 26 is expected to be 0 percent to positive plus percent, positive 5 percent. And Germany and the U.K. public investment demand is expected to lead overall demand. and we are expecting to see the robust demand. Page 28 covers demand trends and outlook for the Asian market. Demand for the 25 fiscal year appears to have increased by 5% year-over-year. In Indonesia, although the demand for mining machinery declined due to sluggish coal prices, overall demand increased due to rising demand for general construction machinery such as food estate projects. In India as well, demand increased, driven by aggressive infrastructure investment. The demand outlook for fiscal year 26 is projected to be a decrease of 5% to 10%. While demand in India is expected to remain robust, demand in Indonesia is forecast to decline significantly due to the government's policy to reduce coal production and impact of the introduction of the B-50, which is via diesel fuel regulations. Page 29 outlined the trends and outlook for demand in a Japanese market. It appears the demand for the 2025 fiscal year declined by 13% compared to the previous year. We expect demand for the 26th to remain at the same level as the previous year. Although nominal construction investment is increasing due to inflation, real-time growth, real-term growth is stagnant due to soaring material and labor costs, and there are currently no signs of recovery in demand. Page 30 presents trends and outlooks for the prices of key minerals related to demand for mining machinery. We expect copper and gold prices to remain at high levels going forward. While both low-grade and high-grade thermal coal are currently trending upward, we will continue to monitor future developments closely. Page 31 shows the trend in demand for mining machinery. It appears the number of units in demand for fiscal year 25 decreased by 10% year-on-year. Overall demand declined due to a significant drop in demand for coal-related machinery in Indonesia. The demand forecast for fiscal year 26 is expected to be a 10% to 15% decline. Although demand for copper and gold mining equipment is expected to remain at a high level, overall demand is projected to decline due to weak coal-related demand and the completion of the replacement cycle in North America and Oceania, an impact of the situation in the Middle East. Page 32 presents a sales outlook for the construction, machinery, mining equipment, and utilities segment, including equipment, parts, and services. In fiscal 25, parts sales increased by 0.4% year-on-year to ¥1,055.2 billion, the aftermarket segment as a whole, including services, accounting for 52% of total sales. Excluding the impact of forex, total aftermarket sales increased by 1% year-on-year. For fiscal 26, parts sales are projected to increase by 2.3% year-on-year to 1 trillion 78.5 billion yen. The aftermarket overall sales ratio including services is projected to be 53% and aftermarket sales excluding forex effects are projected to increase by 3.1% year-on-year. The page 33 presents outlook for capital expenditures and other investments for fiscal year 26. Excluding investments in rental assets on the left, capital expenditures are expected to increase year-on-year due to investments in production and sales facilities, as well as the reconstruction of the head office. Research and development centers, shown in the center, are expected to increase year-over-year due to focused investment in adapting diverse power sources and automation. Fixed costs, shown on the right, incorporate the effects of the structural reforms. However, they are expected to increase year-over-year due to wage increases and higher R&D expenses. Next, I'll explain the main topics. Page 51 now. Komatsu has acquired a remanufacturing business for construction and mining machinery components and parts from SRC of Lexington through its wholly-owned subsidiary Komatsu North America, Komatsu America Corp. In 2009, Komatsu transferred its North American remanufacturing business to SRC of Lexington and since then has continued to do business with the company as one of its most important suppliers for Komatsu's North American remanufacturing operations. With this acquisition of SRC of Lexington's remanufacturing business, Komatsu will further expand this operation by establishing a new dedicated manufacturing facility in North America, one of the largest markets for construction and mining equipment. Page 52. In December 2025, Obayashi Corporation, Iwatani Corporation, and Komatsu conducted demonstration tests of hydrogen fuel cell-powered hydraulic excavator during rockfall prevention work on the Jyoshin A2 expressway. The tests confirmed several benefits, including operational performance equivalent to that of conventional diesel-powered models, and reduced operator fatigue due to the absence of vibration. At the same time, we reaffirm the challenges facing practical implementation, such as the need for higher capacity in the fast hydrogen supply and refueling systems. The three companies will continue to conduct the studies and verification tests aimed at practical implementation. Page 53. Komatsu exhibited at ConExpo International Construction Machinery Trade Show held in Las Vegas, USA from March 3 to 7. The company showcased a new generation of vehicles including bulldozers and hydraulic excavators equipped with the latest features, such as intelligent machine control, as well as articulated dump trucks designed to further improve operation efficiency. Komatsu highlighted its initiatives to leverage data from vehicles and digital solutions to enhance customer productivity and safety while reducing total costs of ownership. Page 54. Komatsu has acquired MAFA Forest, a forestry machinery manufacturer, through its wholly-owned subsidiary, Komatsu Forest, by acquiring its technological capabilities and product lineup for a lightweight, compact, cut-length forestry machinery specifically designed for thinning operations, a segment in which Komatsu previously had no presence. the company will contribute to value creation across the entire circular forestry process. Page 55, we have reached cumulative total of the 1,000 units for our ultra-large autonomous dump truck equipped with autonomous haul system, AHS, for mining operations. Since introducing AHS for the first time in the world in 2008, the cumulative total haulage volume has exceeded 11.5 billion tons. That concludes my presentation.

Now we would like to move on to the Q&A session. So first, we would like to take any questions from the people here. Maikawa-san from Nomura, please. This is Maikawa from Nomura. Thank you very much for your time today. I have two questions. First, regarding tariff impact and price increases. Hosotani-san, you mentioned this in your presentation, but last fiscal year, $64.2 billion was the cost impact. I think originally you were expecting $55 billion and about $120 billion, which is four quarters a quarter multiplied by four was going to be your expectation for fiscal 26. So what kind of changes did you experience in reaching your results for fiscal 25? Can you confirm that first? And what have you accounted for for this fiscal year? This is Hisi Numa speaking regarding U.S. tariffs. There are no major changes on a dollar basis. We were converting it at 140 yen before, but now it's at 150. yen against the dollar, or to be more exact, 150.5 yen against the dollar. Therefore, on the U.S. dollar basis, it's not different. It hasn't changed. It's just because of the FX impact. For fiscal 26, the impact will materialize on a full year basis. So it was about around 600 million before, but it should reach around 900 million. Other than that, we have accounted for refunds as well, which is equivalent to the reciprocal tariffs that are likely to be refunded. So that's what we have accounted for. Thank you. So if it's $900 million, it's about 135 billion yen. For steel and aluminum, how much of an increase, how much of a decrease are you expecting from reciprocal? And the 30 billion refunds are also included in the 135 billion. So when you look out at March 28, is it going to become 165 billion? So can you break down the 135 billion? What has been going up? What has been coming down? or Can you talk about how it's going to rise from the $64.2 billion? Well, regarding the period before, it was from the middle of the year. So at the beginning of the year, we did have inventory from the previous year. So we started paying the tariffs at a later timing from a payment point of view. From a P&L impact, we had year-end inventories, so it was relatively low. But in fiscal 26, from the beginning of the fiscal year, we are making payments. So there is a period difference. And regarding the details, reciprocal tariffs may be gone, but for steel and aluminum, we used to calculate the content in order to reduce the level of tariffs paid. But now it's at 25%. So the impact is greater. So that is one reason why it's greater than before. From that point of view, for the refunds, that's about last fiscal year's portion. So for fiscal 27... We won't have deferrals from the previous fiscal year. Therefore, we will see full impact. So if nothing changes, it's likely to be $165 billion next year. Of course, that 10% or Article 122, when that's going to end, is a question mark. But, well... If we're working off the assumption that the same thing is going to materialize for the next year, that's what we're accounting for, but we are not sure. In that case, it's $135 billion. For next year, the following year, if sales and production is not going to change, it should be about $130 billion for fiscal 27 as well. And this year, it's $30 billion less. Or excuse me. For the results for fiscal 25, we already said that it was 64.2 billion yen. And for fiscal 26, originally, we were guiding 130.7 billion or 130.8 billion. But because of the refunds that we were explaining, which is worth 200 million U.S. dollars, which we view as 30 billion in Japanese yen terms, so when you count for that, it should be a little bit over 100 billion. of an impact on our P&L. Got it. Thank you. For price increases. And on page 22, when you look at the projections for selling prices, it's plus $68.9 billion. So hypothetically, even if you don't get the refunds at $130 billion, you should be able to make up for it through price increases. Are you making progress and have you gained visibility already? Can you also speak to that? This is Hishinuma speaking regarding pricing. We did a bottom-up approach looking at the business plans of our subsidiaries, but price increases are also accounted for for the U.S. But Caterpillar is not raising prices, and those are the circumstances, so there may be a risk. However, for the tariff increases in the U.S., we won't be able to absorb it completely just with the U.S., so global price increases need to happen. So that's what we're accounting for. Understood. My second question is for this fiscal year and your view on volume. Also going back to page 16, in light of the Middle Eastern conflict, you have reduced sales by $90.1 billion. And last year when there were some tentative assumptions for GDP, As much as you can see, what can you see, what can you not see? So what are the assumptions that led you to $90.1 billion? Because in mining, when energy prices are high, I think that may also serve as a positive. So I was wondering how you view this situation. This is Hishinuma. First, regarding demand for the Middle East, a 60% decline is expected. So that has been accounted for, 6-0%. And also, due to the impact from the Strait of Hormuz, we believe costs are likely to increase, and especially negative impact on countries in Asia. So we're expecting sales to decline. But when it comes to higher coal prices, there is a chance that they may stimulate demand. But when you look at countries like Indonesia, it's true that what originally used to be $40, $50 a ton are now reaching $60 a ton. But even so, we are seeing a higher idle standby rate of equipment. And we're not sure if this is going to continue or not in the future. So demand has not really picked up. So currently, people are still on the sidelines waiting and seeing. There may be an opportunity, but so far, we have not accounted for that in our expectations. Just to add a comment to that, last year, U.S. terrorists just started, so it was hard to account for it in our guidance. But based off IMF predictions and so forth, we have viewed how much GDP is likely to decline and what's going to happen to demand. And that is why we accounted for a $50 billion decline in sales. But the global economies have not yet fallen. but we try to account for risk as much as possible to the extent that we can calculate. And also, the Middle Eastern crisis, we don't really know its impact clearly yet, but our way of thinking is the impact from the Strait of Hormuz is likely to continue. That's the assumption we have. Then, because we are dependent on crude oil as well as LPG, regions like Africa as well as Asia are likely to be affected. So, like Hishinuma-san explained, we are expecting a demand decline in Asia as well as in the Middle East, leading to a sales decline in turn. And also, accounting for our gut feeling that we have experienced from the past, we have accounted for a 90 billion impact. And also, due to higher crude oil prices, we are already seeing material prices increase that are crude oil-derived. And that impact is $18.8 billion. So this is purely looked at as a cost increase. So $90 billion of volume decline and $18.8 billion of a cost increase SVM-wise is what we've assumed due to what I've just explained. On the other hand, of course, the impact may be greater than our assumptions, or the crude oil-derived goods may fall into a shortage, which may affect our production. But that is still not known, so we have not accounted for that negative impact. Thank you.