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.

MS. I would like to move on to the next one. Sasaki-san from UBS. Thank you. This is Sasaki from UBS Securities. I got several ones, but the first question is the figures I always ask you. Page 22, this waterfall chart and volume product mix and also the cost variance. Looking at the page 9 and page 22, the plan and actual performance, and there have been some figures related to Taurus, but could you please give us the details around those factors? And This volume mix has been negatively contributed to your performance. So the negative 32.2 billion yen, that's in your plan, but what gets you to that number? Thank you. This is Hosotani speaking. First, page 9. Page 24 and page 25, variance. First and segment profit, 72.6 billion yen of the volume mix and product mix difference. Just hold on a moment. I'm sorry, oh, this one. First, 25.8 billion yen for the volume difference, and that was a negative. And also product mix, 25.1 billion yen, that's included. Now, factors for this. is that, as we explained, electric dump truck, as we explained those up until the last fiscal year, and it's not that they were able to enjoy the higher profitability, but the mix increased for this electrical dump truck. And also, Chile contract business margin declined slightly. And also regional mix had negatives here. And among the region, the highest profitability comes from Indonesia. And sales volume significantly decreased in Indonesia market. And that's why regional mix had seen impacts from that and 19.6 billion yen approximately. Now moving on to the right, in production cost, 81.6 billion yen negative. Let me give you the breakdown for that, which includes a U.S. tariff cost increase, 64.2 billion yen. This is only applicable to the construction equipment of the 64.2 billion yen and other ones. like the bearings coming from the industrial others, industrial machinery and others, and also cost the bearings. Let me give you the breakdown for that. From third party, we purchase components, the major components, and those costs started to inflate. So that's why there is the major variance of the cost of goods. And fixed cost variance. Fiscal year 24 to 25, the labor cost significantly increased. Oh, apology. Oh, you talked about the volume variance. Oh, apology. Hold it a moment. For fixed cost, 20 billion yen comes from the labor cost. And the SDP projects were underway. And also the variance in comparison between 25 and 26. 31.8 billion yen of the volume that's been included here and of which the volume mix amounts to 40 billion yen 40 billion the big gen comes from indonesia hold on a moment other than volume mix, and the regional mix and product mix are written here. Fiscal year 25, the losses we have to make were all gone for 26, so 31.8 billion yen included volume mix, and that amount to 40 billion yen. That's all from me. What about the variance of cost of goods? because I guess the cost increases comes from the conflicts in the Middle East. Yes, fiscal 25 and 6, the 49.6 billion yen for production. The U.S. tariffs impact is included here in this number. About 67 billion yen is included here, but at the same time, The 30 billion yen of the refund is included. So the net allow of 37 billion yen of cost increase is included here. And also other cost of goods barriers, 10 billion son is also included. Thank you. My second question, let me take this opportunity to ask this question of Hosotani-san. You took office as CFO. Give us your commitment as a CFO as we look ahead. For example, as a command to the capital efficiency improvement and the better margin, I mean, there could be a number of the lists that you want to attain, You're succeeding Horikoshi-san and took office as CFO. And as one of the members of the top management team, what are the things would you like to achieve? I mean, this is your first time to be here in a financial briefing. Do you have any commitment would you like to make? That's my second question. Well, you set the high bar for me, actually, but let me try to answer. My predecessor, Horikoshi-san, mentioned this, too. But basically, we always have to be mindful of the shareholders in running the business. And I would like to be contributing to the way we run the business. So shareholder returns and balance sheet and ROE. and those indicators are the things I always look for example in comparison 25 to 26 the net income I mean volume declined because of the conflicts in the Middle East so net income declined business size and the revenue size need to expand from our perspective, and to that end, we are engaged in various activities. As we expand the business size, I would like to be of support for the better decision on the management level so that we are able to have a better top line. I would like to engage in those activities as CFO. Is it more of like a better top line? Is it one of the things would you like to commit? That's what I get from your message. What made you think that way? Well, for example, as we look at the current status, the conflicts in the Middle East, and there are impacts from that. It takes time until the situation will go back to where it has been. So in the longer term, this is the one-off factor. But as far as the U.S. is concerned, some say this is a one-off factor. But at the end of the day, This is about the balance of the export import of the United States and other countries, and to try to correct this imbalance. So these costs are permanently subject to occur, so that's why we need to continue to contribute to the cutback cost, but net profit size need to be secured to an extent, which means that we are able to – we need to have a better top line. Thank you.

Let's take the next question from SMBC Niko Taninaka-san. This is Taninaka from SMBC. Nico, thank you for taking my question. Regarding mining equipment mainly, I have two questions. For metal prices, including coal prices, they are rising lately. And in the new fiscal year, when you add up the after services, you're only accounting for about 3% growth year over year. I think you're being conservative when you think about underlying trends. And when you look at the underground mining equipment manufacturers' results, their growth rates look stronger. So can you talk about the backdrop to how you divide these assumptions? This is Hishin Numo speaking. For mining equipment, as you rightly said, prices have been going up for, obviously, copper and gold and so forth. But on the other hand, for equipment, and the way we look at demand. The replacement cycle is pretty long. So there's ups and downs. And also when you look at it by region, there are regions where we're expecting higher demand and other regions where we're expecting lower demand. That's for equipment. And the growth we're expecting for the aftermarket business may look small. However, we did see drop-offs that were quite significant in Indonesia and also in the Middle East. including Reman, we have been growing the business, but all in all, the numbers may not look as dynamic as you are expecting. My second question is with respect to the replacement cycle. And you talked that it has run its course from 2011 through 2013. Demand for mining equipment grew quite substantially. And then you have the replacement cycle. And are you trying to say that the message was that the replacement cycle is over? Or are you saying that over the short term there are ups and downs and replacements are at a standstill at this moment. So for March 28, are you trying to imply that demand is going to go down even more? Well, the cycle we're referring to is not about the 2011 cycle. It's more about whether we have big deals or not in recent years. For example, in North America, in 24-25, for North America, there were some big deals that And we have been explaining that some big deals have been absent in 2025 because there were more in 2024. So there were less in 2025. And in 2026, we are expecting at this moment less of large deals. But regarding the sheer volume of general deals, we are actually seeing an increase. So it's just a matter of whether or not we are carrying large deals or not. For example, in the case of Australia, in fiscal 26, we're not expecting that much of big deals, so to say. That's what we're referring to. But for super large dump trucks that we manufacture in North America, when you look at our production plants and compare 25 with 26, production volume is not going to change that substantially. Even if the sales may not be recognized in 2026, there is a possibility that it's going to go into 2027 sales. And rope shovels are being produced at 100% capacity. And we are also working on fiscal 27 already. And because copper is doing well, We're not really expecting that much decline. However, we need to monitor closely the trends in Indonesia. Thank you. That's all for me.

We would like to take a question from Adachi Sun from Goldman Sachs. Thank you. This is Adachi from Goldman Sachs. Thank you. I have two questions, too. The first one. The mining equipment. As Hishinuma-san shared, Asian market, usually coal prices are on the rise, which is positive, but diesel prices and operating costs have been boosted, which is negative, and negative outweighs a positive, and the dormant, the populated areas The vehicle is increasing. And what are the changes that you have seen for dormant and idle vehicles? And I think that happened to Q1 last fiscal year. There was a last minute demand was very strong and that sub demand in Q2. But as you look ahead, Q1, do you see the subsequent drop from the fiscal year? But do you think that that will be flourished after Q2? Or you think that Q2 and beyond, do you think that moderate decline continues, especially for the Indonesia mining equipment market? Thank you. Thank you. For Indonesia, as you raised a number of the points, the idle vehicles ratio and what are the historical trends? For example, 2024, the end, 5 percent. There used to be 5 percent. Then fiscal year 25 in June, 8.5 percent. And then there was up to 9.6% in January and 10% afterwards and 17% this January. the coal prices goes up and even the workload increases and they are able to handle the increase in volume with the coal prices with the current volume. So 40, B40 and now starting July, it starts to be 50 and production volume 800 million tons, 600 tons, 600 million tons. And there are some talks of increasing the volume throughout the year. We are not 100 percent confident that they are bound to increase, so fiscal year 26. I believe that we are seeing this as a cautious note. Okay, thank you. As Tanigawa-san and Inoself discussed a bit, Indonesian coal and the precious metal have been pretty strong in prices, and the production plan is at a fall, as you said. Inon is accelerated. Would you like to accelerate it further on that point? In North American production capacity ramp-up, rope shovel might be at full. The electric dump truck production plan for fiscal year 26 and 25 will be equivalent, I said, but versus what it has been in the past, there are some times where we produce more. So at the full capacity, if we produce them, and there could be some more availability. So in North American market, we haven't gone to the point where we are doing capex. Okay, thank you very much. Next one is cash flow and the buyback is announced. And the previous year and the two years ago, like those two years, you have announced 100 billion. And what are the decision-making process like? And behind that, free cash flow assumption would have been calculated. How much free cash flow you were expecting? 160 billion yen is expecting, I guess. So how much of the operating cash flow and the working capital level? And what are the production assumption to the working capital? Maybe you can have a breakdown approximately. Do you have any up and down of your planning for production? this is also Tani speaking for free cash flow fiscal 24 free cash flow 300 billion yen or some those fiscal 24 and it's been a few years that 250 billion yen to 300 billion yen of the free cash flow that's our track record of the free cash flow now with this amount dividend and buyback of the 100 billion yen. We have enough excess capacity to do that with this amount because it amounts to 300 billion yen. Now for fiscal year 26, free cash flow or as planned of the 250 billion plus and deposits and others. I mean, sales were not growing and profits declined, but the working capital is expected to improve. So as a result, so we are able to generate equivalent level. 300 billion yen plus of the free cash flow are our commitment. that will continue for three years, and M&A portion excluded, then 1 trillion yen. And that's a commitment and goal we set ourselves. Okay, thank you.

There are people raising their hands on Zoom, so we would like to take that question from the Nikkei. Otake-san, please. Can you hear me? This is Otake speaking. Yes, we can. Thank you very much for the presentation. Just wanted to confirm again. First question is regarding the impact from U.S. tariffs. Please let me sort it out. For the year ended in March 2026, the impact was 64.2 billion yen on European P&L. Is that correct? That is correct. 64.2 billion for construction equipment. That's for construction equipment. But for industrial machinery, there is a bit of tariff impact as well that has been incurred. Thank you. Up until the previous results, According to the materials, you were saying 55 billion of impact from tariffs. So does this include industrial machinery as well on top of construction equipment? It's only several hundreds of millions yen attributed to industrial machinery, so the level doesn't really change. It was about $400 million of an impact from industrial machineries and others. Got it. And from the assumption of $55 billion, the reason why it increased to $64.2 billion is due to FX impact, right? Yes, exactly. No differences on a U.S. dollar basis, broadly speaking. It's just due to the differences in conversion FX rates. So for this fiscal year, for the year ending March 27, excluding refunds, You're expecting $130.8 billion. Is that correct? That is correct. Got it. And the impact amount, the reason why it's higher, you were saying that the content calculation has been abolished and that has had an impact. Can you walk me through what that means and entails? Regarding content, for steel and aluminum content, you calculate how much it's included as part of your product prices or cost. And that is subject to steel and aluminum tariffs and the rest to reciprocal tariffs. So by calculating the content, we have been able to reduce its cost. And even for derivatives, it is 25% now. So when we were calculating the content, it was less than 25%, basically. or by doing a precise calculation of content, you have been explaining from before that you are able to reduce the cost, but I guess that is not possible anymore. Then, in order to reduce tariff impact going forward, such as reviewing your supply chain or logistics, I think that will be key, but with respect to these measures, In order to reduce the negative impact, what are you focusing on or what would you like to focus on going forward? Well, last year in April, we shared with you various types of countermeasures we were planning for. For the products that used to go through North America that went to ultimately Canada or Latin America, by shifting to direct shipments instead and shipping out to Canada directly, we will be able to alleviate the impact. And that is fully contributing already. And there are some parts that are going through the U.S. as well, but by directly shipping and also creating warehouses in Panama, we are trying as much as possible to reduce the impact. And for countermeasures, for steel and aluminum tariffs, not by simply just paying for it, but by calculating the content, we had been trying to minimize the tariff impact. However, now it's going to be 25% across the board, so that countermeasure is no longer viable. However, reciprocal tariffs are now gone, so on a net basis, the actual amount of payments are slightly up. You referred to the P&L, but the impact on 25 and impact on 26, because of more inventory impact, it's going to become greater impact. And the difference in tariffs rates have also been impact or expected to impact us as well. I see. So you are working on various initiatives. But in order to mitigate tariff impact even more, one kinds of fields that it may be challenging, but what would you like to do additionally? Or do you feel that you will be able to reduce its impact? Of course, increasing production in the U.S. is something we are considering, but from a cost point of view, it is also challenging, which is preventing us from doing so. So I think it's more of a buildup of various improvements and hopefully we could raise prices to make up for it globally or reduce costs globally as well so that we can ensure that we are profitable. And sorry for going on, but for price increases, You were talking about Caterpillar and that they are not raising prices recently, but currently in the US as well as in other regions. When you look across the competitive landscape, how are the price increase trends from your point of view? How do you view the market? Well, we have been communicating this from before, but from several years ago, in accordance with higher steel prices, we have been increasing prices, but our competitors have been more bullish in raising prices. So we were a little bit behind. But in order to catch up, we have continued to steadily raise prices. But now, still prices have calmed down. And price increases just limited to higher tariffs is not really happening. And that is why we are seeing difficulty here. Thank you. My final question is about the Middle East and its impact. $18.8 billion of a cost increase is what you're expecting. Can you break it down? How would it look like? Can you share with us as much as possible the breakdown? Costs are rising, parts are rising due to oil-derived products and also logistics, transportation costs. Because of higher fuel costs, that has been accounted for as well. The majority is because of higher parts prices and cost increases. meaning fuel, oils, paint, gas that are oil-derived, material prices have already been going up quite a lot. So that has been accounted for as a cost increase. I see. So procurement cost increases is about maybe 80% of the cost increase and maybe 20 to 30% associated with seaborne transportation. Maybe it's like a 70-30 split. I see. Thank you. Thank you.

I'd like to take questions from anyone joining us online. B of A, Hota-san, please go ahead. This is Hota from Bank of America. Thank you so much for your time. I have two questions, too. First, with the conflicts for the Middle East and that has impacts on volume and other mix, on the production front, you have uncertainties or you haven't incorporated them into the guidance, as you said. But if possible, on production front, how much impact do you think that there is? You said there is nothing for now, but given the current situation, how much potential impacts you might have to suffer from? Or are you saying that you have enough inventory so you're able to have the muted impacts from that on the production front? Give us the details around production areas, if there's anything you can share with us. Well, first in production area or production front, First, we try to sustain production work, and we try to work with suppliers. We try to secure enough works and components. And how far are we able to secure them? It's not to say that we're able to secure them for six months and one year ahead. So we always have to cement where we are, and we try to secure production. To the worst-case scenario, NAFTA and other materials could have issues in the future, and if and when, if we can secure some of the materials from plants for any of the one single supplier, and the production itself could be impacted. But when will that happen? We're still not sure. That's why we haven't incorporated the potential factors into the guidance this time. Okay, thank you. My second question is mining equipment. You said replacement cycle. And you said there is a completed replacement cycle now, but the fuel is on the rise. So a little bit outdated equipments. needs to be in newer ones so that that uses less oil or less fuel. Is that kind of the replacement demand that you're saying? Well, it's not going to be replacement cycle you're going to see in the passenger cars. Okay. But to stay on the same topic of the fuel prices, if you look at the Australian market, diesel shortages is very dire. And SMEs, mining companies, started to say the shortage of diesel and that they need to compromise the utilization ratio recently. And BHP has no issue whatsoever because they are big enough, but Australian market is primarily a market where the utilization ratio for the machine is declining. Is that something you are saying, or isn't there any impacts on your operation whatsoever in terms of the diesel shortage? Well, we haven't witnessed any of the specifics, be it suspension of the operation itself, but there are risks, yes. Okay. Thank you very much. That's all from me.

Thank you for your question. There's another question from online. McDonald-san from Citigroup Securities. Can you hear me? Yes, we can. This is McDonald speaking. Thank you for your time today. I have a question about page 26 in North America. Looking at the right-hand side for Q4, for the 7 PLs, it was plus 7%. And going back, I think for the first time in several occasions, it was a good number, maybe several years, where you're seeing an uptrend. Even so, for this fiscal year, for volume, you're expecting flattish demand compared to fiscal 25. The non-housing space, when you look at the segments like mining energy, road construction, and data centers and so forth, for this fiscal year, I kind of think that you're conservative in your projections for North America this year. Of course, I'm sure you have a lot of concerns in your heads, but why are you guiding flattish demand? Shouldn't you be guiding having an assumption that is more positive? That's my first question. Thank you for the question. For North America, as you said, what we show in the material for page 26, At the bottom right, we show the breakdown of demand by segment divided into rental, energy, infrastructure that are performing positively across the board. It was only housing as well as government-related that was negatively contributing. So, all in all, the trends are positive. And after completing fiscal 25, we saw plus 3 percent growth. So when you listen to what customers are saying, even, they have about order backlog of six months to two and a half years. Therefore, we do believe the market is quite strong. So our assumptions are flattish. but we're not really anticipating any major negatives. Therefore, yes, you can say that we are being conservative. Well, from a regional point of view, Indonesia apparently had the highest profitability in the past, but if you're so bearish about Indonesia, the highest profitability as a market, I guess, is coming from North America in the non-housing segments. Do you think that's true, that it has the highest margins? If you just look at SVM, excluding fixed costs, the procurement cost, inclusive of tariffs, is quite big. So, no, the margins are not the highest in North America. Okay, thank you. So it will continue to be challenging. So I just wanted to confirm another thing about page 9, I think. In your comments, Hosotani-san. for last fiscal year and the negatives from product mix was EDTs. Is this one-off? Or for electric dump trucks and its profitability, is it relatively low? I just wanted to confirm that point you made. This is Huzatani speaking. Our dump trucks, it's because of our dump truck mix Globally, the regions where dump truck margins were high was Indonesia. For Indonesia, we have been selling rigid dump trucks mainly. Electric dump trucks are being made in the U.S., on the other hand. Compared to rigid dump trucks, the costs are greater due to its structure. And sales in Indonesia, especially for mining, has been dropping off. So product mix-wise, rigid went down, whilst EDT composition has increased. So from a product mix point of view, because of more electric dump trucks, average margins have come down slightly. I see. So we shouldn't be that concerned, I guess. Correct. Finally, I have a quick question on topics. On page 50, you talked about AHSs and reaching 1,000 units in volume. I think that's great. Going forward, do you have any numerical targets as to how to grow the business even more? That's my final question. Well, in the strategic growth plan and our targets, it was 1,000 units in fiscal 27. That was our original target, but we have been able to reach it beforehand. So we are thinking about raising the target up to 1,200 units instead. So compared to the pace we saw back in fiscal 25, it looks like it's going to decelerate. However, new customer implementation is likely to increase. And in that case, the rate of increases is going to look like it's decelerating, but we will continue to work on its implementation. How about margins? Compared to rigid dump trucks, is it lower? Well, we talked about electric dump trucks earlier, so that in itself is not that high, but this is an AHS system. and we receive income from subscriptions as well. So that is a positive. I see. Thank you very much.

Thank you. We are counting down some time. Anyone who has questions here? Okay, I'd like to take a final question from the floor. Narita from Mizuho Securities. Sorry, I'm repeating myself, but Page 28, here in Indonesia, mining equipment demand doesn't look like it's declining so much. And yes, I do understand that there is a declining market, but the Chinese manufacturers I tried to make any roads into mining equipments more and more. And against the hotlock in Latin America, the Indonesia and those smaller dumps were utilized in those Indonesia. So other than the market, did there have been anything that you can share other than competitive landscapes? And also, you said Indonesia has the highest margin, whereas core prices will give you the headwind, and that might be changing in the future. But with your self-effort, do you see any capacity to increase further of a performance in Indonesia? as you see the bottom right page 28 you see the demand trend and that might be misleading but you see by sector here so in terms of the size the smaller equipment for mining are included here and then fiscal year 25 we are shipping a lot of those smaller ones and 100 tons demand is on the decline so that does that that sounds like that doesn't add up but the demand for 100 tons the customer try to hold back the purchase that's why we are struggling and fiscal year 26 the core production volume is going to be struggling but we work with the distributors to secure enough volume here. Okay, clear. Thank you.

So finally, Tai-san from Daiwa Securities, we would like to take your question remotely. Please keep it brief. Yes, I'll keep my question brief. I have a question for Imayoshi-san. With respect to the Middle East and tariffs, that was the main topic for today's call. Even if you add back those numbers into your guidance, profitability is expected to be about the same as last year or a little bit down, whether it be on a company-wide basis or for the CNME segment. And I think it all comes down to inflation, maybe. But how about striving to raise profitability by making up for it? Do you have that intention? Or are you fine with this kind of margin? And would you like to instead raise top line? because you have just started a new fiscal year. So, Imayoshi-san, of course, can you talk about some themes that you're considering as a company? Of course, countermeasures for the Middle Eastern conflict may be one, but I was hoping that you could share one or two things on your mind. Well, as stated in the strategic growth plan, we want to have profitability and growth rates that exceed industry levels. So it's not just about growing top line, but also profitability as well. Overall, demand-wise, we are at a juncture where it's broadly flat. It's not just tariffs impact, but Indonesia's drop-off is also a negative when it comes to profitability. But we will steadily implement the measures that we're stating in the strategic growth plan. We will work on product development as well as we'll think about ways to grow the aftermarket business. So we would like to ensure that we're able to generate results so that we can also enhance profitability. Thank you. I see. That's all from me. Thank you very much. This concludes the Q&A session.