Mitsubishi Heavy Industries, Ltd.

The time has come for us to begin the Mitsubishi Heavy Industries Limited fiscal year 2024 financial results briefing. My name is Tadashi Arakawa, Senior General Manager of the Investor Relations and Shareholder Relations Department. I will be your moderator today. Thank you for joining. I'd like to introduce today's speakers, Eisaku Ito, President and CEO, and Kisato Kozawa, Member of the Board, Executive Vice President and CFO. We will begin with a presentation on our fiscal year 2024 financial results from our CFO, Kozawa. After that, President Ito will provide comments on his assessment of the fiscal year 2024 financial results, as well as regarding our corporate strategy for fiscal year 2025. Finally, we will have time for Q&A. Today's briefing is scheduled to end at 4.30 p.m. Japan Standard Time. We appreciate your cooperation during today's event. Our presenters will use the fiscal year 2024 financial results slide deck, which is available for download at the investor section of our website. Without further ado, allow me to move on to CFO Kozawa's financial results presentation. Hello, everyone. I am Kozawa. I will now go through our slides. financial year 2020 financial results, and our FY2025 earnings forecast. So it's as usual. You can see the table of contents on slide two. First, I would like to provide an overview of our financial results in fiscal year 2024. Please refer to slide four. This slide shows results and several key financial indicators, and highlights of the results are shown on slide five. order intake, revenue, business profit, and net income all exceeded the results of the previous fiscal year and reached record highs. Free cash flow also reached a record high of 342.7 billion yen. We also achieved all of the targets within our most recently announced forecast. And based on the increase in equity resulting from the booking of net income for fiscal year 2024, We'll increase our year-end dividend by 1 yen over the previously known forecast of 12 yen per share, which makes the full-year dividend 23 yen per share. Additionally, in the previous fiscal year, the full-year dividend was 20 yen when adjusted for the stock split, which makes this dividend a 3 yen or 15% increase compared to previous year. This dividend per share figure is a record high when adjusting for last year's stock split. Slides six through eight show some highlights from our financial results. Slide six is about GTCC gas turbine combined cycle. The bar graph in the lower left-hand corner shows gas turbine market demand data on a calendar year basis. Demand increased significantly in 2024 to 55 kilowatts. During fiscal year 2024, MHI booked orders for 25 large frame gas turbine units and the amount of order intake also reached a record high. Although not mentioned on this slide, we believe that our company is second only to GE and Nova in terms of market share on an OEM basis. As shown in the graph to the right, revenue, both new installations and services revenue, has continued to increase, partly due to growth in orders over the past few years, and we expect revenue to increase in fiscal year 2025 as well. Slide seven is about nuclear power. As can be seen from the color coding in the bar graph on this slide, While the composition of revenue has gradually changed, total revenue has been stable around 300 billion yen per year since fiscal year 2020. Going forward, we expect to maintain revenue around 300 billion yen or a little higher for the time being as we make progress in the design of advanced reactors and BWR restart work. Slide 8 shows order intake and revenue in defense and space. Order intake in fiscal year 2024 was almost as in fiscal year 2023, which was the highest ever achieved in this business. This was due to the fact that under the Japanese government policy of strengthening the country's defense capabilities, I mentioned I booked orders for several large projects, including missile systems and naval ships, which are some of our specialties in the sector. Revenue has also increased significantly due to an increase in order intake since fiscal year 2023, reaching record highs for two consecutive years. So we believe it's going to grow a little bit more further. And slides 9 and beyond provide a little bit more detail about the financial results. Slide 10 includes information already provided, so I will forego an explanation. Slides 11 and 12 show the balance sheet of the around 400 billion yen increase in total assets. More than 200 billion yen is from an increase in cash and cash equivalents. Although this was due to a temporary increase in cash at the end of the fiscal year, due to receipt of advances received, cash and cash equivalents were 657.8 billion yen at the end of the fiscal year, which slightly exceeded interest-bearing debt, which was 651.8 billion yen. So this was the first time that net interest-bearing debt became negative. The equity ratio has been stable at around 35%, and the debt-to-equity ratio has reached a record low level. We believe that our financial stability and capacity to raise funds have increased. Slide 13 shows trends in several financial indicators. You can see that each indicator is improving steadily. Slide 14 shows our cash flows. Green cash flow improved by 142.6 billion yen Year-on-year, it is 342.7 billion yen. Both free cash flow and operating cash flow, which was 530.4 billion, reached record highs. Compared with the previously announced free cash flow forecast of break-even, this was an increase of 300 billion yen. The significant improvement was due to an increase in cash inflows from advances received arising from large increase in order intake toward the end of the fiscal year, as well as due to a delay in the timing of outflows from investments.

Summary 15 shows factors that caused changes in business profit from 282.5 billion yen in FY2023 to 383.1 billion yen in FY2024. Although the impact of wage hikes and other factors pushed down profits in a period, the increase in sales and improved profit margin in each segment, as well as the effect of a weaker yen and increased gains on the asset disposal, resulted in a significant increase in profits. If I may add a little more details, the changes in one-time expenses represents the difference between 54 billion yen in FY2023 and the 20 billion yen in FY2024. These expenses were mainly caused from business structure optimization as well as extraordinary losses, including the execution team of power plant products. In FY2023, we booked one-time expenses related to an aero engine program and the claims for overseas projects. In FY2024, we booked expenses from claims and dispute resolution costs for overseas projects. Two bars to the right of that, losses from equity method FPC investments represents our share of one-time expenses recorded by power plant operating companies in the third quarter, as I explained during the Q3 financial results briefing. Slide 16 shows a summary of order intake, revenue, and business profits by segment. Over the next few slides, I will explain the situation in each segment. Slide 11 shows the situation in the energy segment, the energy system segment. As I mentioned earlier, performance in GPCC and nuclear power, which are the main earnings in this segment, have been strong. In aero engines, revenue and profit increased due to increased demand and a rebound from one-time losses incurred during the previous fiscal year. Slide 19 shows the situation in the plants and infrastructure system segment. In metals machinery, which is the main earner in the segment, order intake, revenue, and the profit increased year-on-year. In machinery systems, order intake, revenue, and the profit increased steadily. Slide 19 shows the situation in logistics, thermal, and the driver system segment, or LT&D. FY2024 was a difficult year for this segment. Order intake and revenue were in line with the previous fiscal year, while profit decreased significantly. Although revenue and profit increased due to strong performance in the HVAC business, revenue and profit decreased significantly in the logistics systems business due to a slowdown in the North American market and an engine certification problem. In the turbochargers business, a loss was recorded due to the bankruptcy of a supplier in Europe. Slide 20 shows the situation in the aircraft, defense, and space segment. In the defense and space business, in addition to the increase in revenue I explained earlier, profit margins have been improving. In the commercial aviation business, despite a decrease in the number of Boeing 777 units shipped, we were able to maintain revenue scale due to growth in the North American aftermarket business and the depreciation of the yen. Over the next few slides, I will speak a little about our financial year 2025 earnings forecast. Slides 22 and 23 provides an overview of the earnings forecast. Total order intake is expected to remain at a high level of nearly 6 trillion yen, although this represents a decrease from FY 2024. Revenue and profit are expected to increase. We are planning for a four-year dividend of 24 yen per share, a year-on-year increase of 1 yen per share, As noted at the bottom of slide 23, the impact of American reciprocal tariffs is currently unclear and cannot be evaluated, so we have not included this in our forecast. We are expecting cost increases for components and other items imported to the United States, but we will work to minimize direct impact on our earnings by passing through this cost to our customers. It is hard to predict market trends and economic fluctuations, but we will make every effort to respond quickly two conditions on the ground. After slide 24, there is an explanation about the gaps, ups and downs, but I'd like to not talk about that. For the slide 29 and onwards, we have some supplementary data, so please look at that for your convenience. This concludes my explanation. Thank you very much for your attention.

Thank you so much. We will now move on to President Ito's comments. Please go ahead. This is Ito, President. I would like to speak about my assessment of the fiscal year 2024 financial results and our corporate strategy for fiscal year 2025. In the financial year 2024, order intake, revenue, business profit, and the cash flow all overachieved the plans we established at the beginning of the fiscal year. Particularly when it comes to order intake, we greatly overachieved our initial plans. These results come from our efforts in expanding service businesses and initiatives to improve productivity. Our evaluation is that we have been able to achieve a smooth start in the first year of our 2024 midterm business plan. On the other hand, when we look at the current business environment, reciprocal tariff policies, increasing inflation, are leading to concerns around global economic downturns, exchange rate fluctuations, there is much uncertainty. At the same time, we also see increased understanding towards a more realistic energy transition that does not solely rely on renewable energy. So we see various business environment changes. Our company will flexibly respond to these environmental changes, prepare for uncertainty, and will steadily capture new business opportunities. Under this business environment, we intend to drive various initiatives for business growth and further profitability improvements with even more power. In order to do this, we will introduce a new concept called innovative total optimization. As we strive to expand our business areas and synergies, in the short term, we will aim to achieve our 2024 midterm business plan. And mid to long term, we aim to unleash our growth potential and create new value so we can achieve sustainable and substantial growth.

Specifically, in the growing businesses of energy and defense, our top priority is to enhance our business execution capabilities and distinctly carry out projects. At the same time, to achieve sustainable growth, we will aggressively and rationally conduct R&D and capital investment for the future and steadily seize new business opportunities. Secondly, energy transition and carbon neutral related business, which is a growth domain, has been slower than expected due to changes in business landscape and the customer demands are changing significantly. In light of these factors, We will continue and accelerate development, focusing on economic rationality and energy security, which are the keys for the implementation in society to pursue a growth strategy. In addition, the business for data centers will be expanded by starting to supply machinery and electric systems. Businesses to strengthen competitiveness have experienced the large changes in environments, particularly in mid- and mass-produced products. Although some businesses are struggling, steps have been taken, and we believe that it can improve in FY 2025. We will verify the effectiveness of our initial plan and develop business models that fit individual business environment and the characteristics. For example, measures will be implemented to optimize the entire customer value chain by focusing on the real needs of end users, such as labor savings and automation. In addition, we will utilize digital technology to enhance services and create new business opportunities. So, does this wrap it up? Well, currently, the order backlog exceeds 10 trillion yen, and in FY 2025, we will deliver quality and services that meet customers' expectations with one-time on-timer delivery and cost as planned. We will steadily implement measures to achieve the plan. In addition to changes in the business environment, we shall also strengthen our ability to respond immediately to signs of change. Furthermore, we shall promote new policies and lay the foundation for sustainable and significant growth going forward. This new concept and measures will be explained in detail at the NTP 24 reporting meeting scheduled for the end of May. That's the end of my explanation. Thank you very much.

We will now move on to the Q&A session. If you have a question, please use the bottom of the web meeting menu and click the raise hand button. If you are joining via PC, the hand icon will turn yellow while your hand is raised. If you are joining via smartphone, the hand icon will turn white. You click on the raise hand button again. You can lower your hand. If you are selected by the moderator, you will be able to unmute yourself. Please confirm that you have been unmuted before you ask your question. And please make sure that keyboard typing or other noises are not picked up by your microphone while the question is being answered. We will now take some questions. Does anyone have a question? Okay, let us go to the first person from Nomura Securities. Thank you so much. Two questions. First, your ideas on tariff impacts. So if it's gas turbines, there are some things that you're carrying over from Takasago, but you are doing things localized. But I think the total risk is controllable. I think I remember you mentioned that in the past, and for Boeing, for the aircraft, I think Terex might not be in scope of that. So you cannot see how demand will change, but in terms of the costs, maybe turbochargers would be the major impact. Is that the correct way to understand the situation? Basically, I believe it's not going to be major cost of impact. That is my understanding. But is that understanding correct? So could you please speak about the impact of tariffs? So that's my first question. Can you hear me? So Kosama will answer the question. So as Mariko-san mentioned, understanding is generally correct. And in reality, turbochargers is one thing, but From overseas, we are taking some things to the United States. Forklifts, those are manufactured locally, but we also have a volume that we procure from overseas. So there's going to be a cost increase impact for that. However, for the forklifts, other companies too, other competitors have a similar supply chain for their procurement. So in terms of the competitive environment, it's not going to change that much. So from our perspective, we will try to pass through the costs. That's our policy. So we believe we can respond in that manner. And is the impact large or small? That is very subjective, so it's very difficult for me to comment on that. But we believe that it is significantly manageable, significantly manageable. Thank you so much for that.

I'm thinking about the changes in the demand itself, the dust turbine and the defense. I think probably your portfolio is quite resilient to the macro change. Well, and you hear on the demand because of the tariff, if there's anything that you're being keen to look at, I think that could be probably the main point that I should be looking at, for example, the commercial usage. Okay, so Kozawa is going to take up the question. Well, as you say, The change in the demand, for example, like a gas turbine, the cost might go up a little bit, but that does not make any changes in the market itself. Rather than that, like industrial usage or the consumable usage, I think those are probably hit much harder. Of course, we can't say anything about the changes in the macro. because of that, or the impact to the macro itself, if that is visible, then it's not going to be limited to the U.S. because if the U.S. gets cold, then other areas might get the heat up as well. So the impact is probably going to be spreading out to outside the U.S. as well, which is not visible at this point of time. But if there's any impact we had in our company because of the business structure that we have, the mass production-related issues, like the LT&D segment, to some extent might get some impact compared to other segments. Okay, thank you so much. Well, I think the second part is about the forecast for the order-taking, where you have the plan. For example, in page 6 for GTCC, and page 8 for the Defense Department, Well, for the year that started for the GRIS timeline, I think that's going to be basically the same as how much you'll be able to work on the project. But still, the inquiries are coming in quite strongly. So much of you can expose, like an order intake for the GTCC and also for the defense. Can you make any comments on that? From the beginning of the year, I think you have had some upswing for the year end for those two businesses. So if you could give some color on this. Well, the forecast for the FY20 flag, right? So first of all, for the aircraft defense and the space, for the distance related, basically, for the year 23-24, the baseline was strong. For 24, we thought that that is going to decline compared to the year before, but as a result, the FY24 also had a very high level of the business to develop. What kind of a where we'll be coming from, the authority will be the point to look at. However, what we'll look at is currently in the area that we are strong, I think the area that the volume of the business that we'll be able to get might be declining, but we are not giving up. We are going to be trying a lot of things from various corners. But in total, 1.8 trillion yen size or scale, that might be quite challenging. And also for the bus turbine business, the energy system site for the gas turbine to be very honest the orders of the 2024 in the energy as i mentioned earlier most of that is coming from the gas turbines impact so the upside that we were able to get had been delivered in 2024, which we thought that that will be kicking in in 2025. So when we look at the balance between the year 24 and 25, then that would look like this. But still, the market demand seems to be continuing quite high. So the upswing and upside may be, of course, possible, to be very honest with you. But this is the current forecast that we have. Anything to add? Well, for the gas turbine, by region, there are some differences. Like North America, as you know, data center and the semiconductor plants, they need quite a lot of power. And that's about the timing for the replacement for the higher efficient gas turbine. That kind of need has been arising at least for decades. those five years or 10 years on average, the demand will be coming on a constant basis is what we are assuming. And also in Asia and the other region clusters. In the past, the carbon neutrality was the point for the renewable energy for some particular regions. But now there are some realistic few to take a look at. And then the clean natural gas, the gas turbine with efficiency for the advanced markets and the developing markets. I think this is probably the most reasonable and the realistic solution. And we get a lot of inquiries for that possibility. So we think that is going to generate a stable business. And for the defense, for the current year, marks the year that we're going to make the proposal for the next five years. So internally, we are making the preparation of what to include in the proposal. And then there are some projects that we are already being paid for making a proposition from the customer side. So we just want to be one step further to come up with the sophisticated and advanced contents of the proposal. so that we'll be able to get those increase in the possible project for our company. Okay. Thank you very much. Well understood. Thank you.

Thank you, Mr. Mayakawa. We'll next move on to Ito-san from Mizuho Securities. Thank you so much. My first question is, when you look at... the profit outlook for this fiscal year, each segment, I'd like to hear about that. I was looking at page 26. First, energy, there's this 346, 34.6 number for energy. It's going to go up. Could you break that down a little bit more? When we look at company total year-over-year, it's close to $60 billion, and absolute number Y, it's like a minus 90, so could you explain about that in terms of the corporate wide? Okay, Kozawa will first answer this question. Regarding energy, there's going to be revenue growth, I think about 334.6. Gas turbines will continue to increase their profits. That is our outlook. And other than that, so in the previous fiscal year, there are some projects that we failed to capture. And in those areas, we can continue to try to eliminate our lost costs, reduce lost costs. So that's how we are trying to generate more profits. And I think you were also asking about the others corporate and eliminations line. There's quite a bit of things going in and out here. One major item here is related to assets. In FY24, which is already over, we sold off our Homoku plant. There were major profits from assets sold that were recorded. And for FY25, we do not have any major similar plans. So that difference... is the largest item contributing to this minus here. So in terms of the overall minus $90 billion, I think there's ERP various different items. What's inside that? For FY25, ERP development costs, that's one thing, and company-wide common R&D costs, And another thing that gets in here is in each of the segments, we still haven't done it, but there are some things that we've set up as growth areas for the future. There are development costs for that. And those are the type of costs that are major items there. Understood and thank you.

My second question about the gas turbine. Can I ask the CEO to explain? Well, you've shown the details. By region, the trend is different. The U.S., Asia, all regions show the different colors. Now, when it comes to your competitive edge, whether that is strong, weak, or disadvantage and advantage, or specifically, for example, the replacement, I think that's a very important trend to follow. probably the existing service provider probably have more negotiation power. Or in the area like the Middle East included, like Saudi Arabia and the Middle East have been raising some of the businesses already. But there are no businesses in the past, but then you're starting to get those businesses. The areas that you are not that much familiar in the past, relatively speaking, I should say, Do you think there have been rising opportunities going forward? Can you supplement that as well, please? Sure. Well, about the competitors that we have in the gas turbine business, our gas turbine customers are the advanced gas turbine, the highly advanced domain, using that as a base load for the super-efficient gas turbine. The load is about 100% fully loaded. That ratio is very high for our business. That's the uniqueness for us. Because that directly leads to the better profitability for our customers that they use the super-efficient gas turbine. So in that case, the competitive edge in a business is retained in our company, I guess. Well, internally, of course, we are preparing for the next step to come for us to retain that competitive edge. And talking about the geography, for example, Middle East. Middle East is many decades ago. In Saudi Arabia, we have sold a lot. But recently, there are some plants that we have supplied. And we do have a lot of inquiries coming. And from new regions, we are starting to hear some inquiries too. So this is the domain that we expect to grow from now. Did I answer your question? Yes. Thank you so much. Thank you.

Thank you, Ito-san from Mizuho Securities. We will next move on to Mr. Taniaka from SMBC Niko Securities. Thank you. So I have two questions. The first is related to, as you go into the new fiscal year, you're Free cash flow forecast is minus $200 billion. Could you give us some background on why you're forecasting that? Because I will respond to that. To be very blunt, F24 jumped up very much, and it's kind of a pushback from that. We don't want to make it minus $200 billion. But with the advances that came in in fiscal year 24, it's going to kind of swing back from that. But maybe there's going to be advances in FY25 too. It could improve, but we don't want to have an aggressive forecast. I will be scolded. So I think this might be the good line of the forecast. Thank you so much. And my second question, I want to look at one-time costs and losses. In the past fiscal year, you might have had quite a bit of buffer for additional costs, but in each of the businesses, one-time costs, losses, how much did those occur? And in the new fiscal year, how much buffer have you built in for those one-time costs? Could you give some clarity there? First for the past fiscal year for the change in one time expensive segment wise this corresponds to energy. This is about thermal powered plants. We were responding to overseas costs and there was a minus 10 billion or so that occurred in the past. And in the fourth quarter, This is another project, but there was another additional claim costs that are the base. So that minus $20 billion is what we are including for the past fiscal year, and something that we have not accounted for here in terms of one cost in the past fiscal year. In reality, I did mention it when I explained the financials. turbocharger, there was some supply chain confusion in the turbocharger business. And in terms of the forklift business, there were certification issues. Those did exist, but for those issues, those were not included in one-time expenses, but they're included in the change in revenue improved margins. So that's how we're allocating for each of these. And for the Outlook, We do not show change in one-time expenses. There's not anything that we do have in mind, but we have about a 20 billion yen buffer in terms of segment that corresponds to energy right now. Energy, unfortunately, on FY24, there was 20 billions and so forth. FY25, you're also looking at 20 billion yen at this point in time in terms of the way we built the numbers. So in terms of the slide 25, change in revenue, improved margins, it's fairly big. The plus 134 includes like forklift turbocharger-related rebound improvements. So those are some uplifts that are included there. That's all for myself. So just to supplement, in terms of other corporate eliminations, I believe about $40 billion is about the real estate sales ending, but I think there's an additional $20 billion minor. Is that not buffer? Is that various development costs built in there? Sorry. Is in slide 27, 28, what are you looking at? There was a waterfall chart, I believe. Yeah, this one. Let's look at 24. Asset management minus 65 is the number that we are showing here. So in terms of the fiscal year that's ended, About 50 is included in the segment, but out of 65, 60 or so is what we are seeing in the other area. The asset-related gap is reflected there. And I think you mentioned 40, and I think that might be slide 13 or something. And I think you were speaking about the reverse there. This is the year-on-year difference. So this is about the impact that we are looking at in terms of the difference between 24 and totality. That's all for myself. I understand that's all for myself.

Thank you so much. Now the next question comes from of Jeffries. Thank you very much for your explanation for today too. I have two questions. The first question, is about the gas turbine business. In the beginning, you talked about last year's share. They have ranked number two. Probably overseas manufacturers have been taking a lot of businesses. Talking about the current fiscal year, GPCC, the order intake plan, you do see the gap against what you have taken last year as a result. So my concern is last fiscal year, you're ranked number two. This year, do you think you're going to stick back that situation of being number one? So in the gas turbine business, your market share, do you have any view for the change of this? Thank you for the question. Talking about the number one and number two, it's hard to see because as you say, the competitors are located overseas. So we've been ranked number one and two. When we talk about that, we normally base that figure on the calendar year. In the meantime, this order for our financial year, we close our book in March end. So there is a difference of the calendar year in the fiscal year. So it's hard to make an apple to apple. But what kind of a market share we think we'll be able to grab? I think that, of course, depends on the size of the project and what kind of a timing that is going to come in as an order intake throughout the year. It's hard to assess and forecast, but in terms of the value base, for example, as I mentioned earlier, what kind of a project coming in, like a peripheral works they have as a construction, and what kind of other additional auxiliary work is going to be coming as an addition is going to make up the differences. So the value amount per project might change quite easily. But looking at the market environment and landscape, we are not seeing signs that we're going to change the presence in the market. So we'd like to, of course, see the business to some extent. And the ITO is going to supplement. Well, our company, MSI, Again, for the current year, clear, but for the next fiscal year, we've been utilizing the capacity almost fully. The competitors, their capacity, the production capacity is big. So the ones that they have not been utilized, maybe they could use that for the mid to smaller size of the turbines. So when we look in total, our capacity is the bottleneck. And that probably is reflecting the market share in the ranking. But as was mentioned, our gutter buying customers are utility corporates. They want to see the higher efficiency. companies at the high utilization, the high run rate. That's the normal pattern of the operation. So that large-sized, most advanced gas turbines that they are buying. Those are a lot of inquiries that we are getting. And we do get those inquiries for quite a long time for going forward. And the other companies' warrants are like a middle cut or the peak cut type of the things. However, the unit scale is quite big, so that the total capacity may look big. That's the public data. Our total share is number two, but for the advanced gas turbine, I do remember we are still positioned to number one.

Sorry, I'd like to just build on that.

So we're looking at the comparison of the SI-24 and 25. It seems that that is going to decline. But in SI-24, about three months ago, we came up with this outlook, and we did not think that it's going to go up that much. So compared to that forecast, actually, the 2024 had a lot of the uptake. Most of that portion is coming from the past turbine, good performance. So I think that probably the variance between the 24 and 25. So if some kind of variance happens again from the 26 over 25, then the same situation might happen. That's probably the best I can say.

Fukuhara-sama, thank you so much.

Fukuhara-san, are you okay?

Thank you.

I had a second question. So inside the CEO's comments for businesses where you are trying to become more competitive, you have made moves in the fiscal year, so you should start to see results from this fiscal year. I believe you commented that. But when you look at this year's plan, especially or logistics terminal drawing system, when you look at the profitability there, so when you look at the terminal profit, it doesn't seem to be reflecting the profitability improvements after you made those improvement initiatives. So what sort of improvement initiatives did you do? And this fiscal year, Where are those profitability improvements going to emerge? That's my second question. So first, for the mass production items, there was some supply chain confusion, and we have been able to prepare another supply chain so we can manufacture those items. And in some regions, We have more inventory, and we are also doing production adjustments for those regions. So each of those items are small initiatives, but those are some of the initiatives that we have been doing. And FY25, in addition to those initiatives, one thing, this is something that we do always, but We have been trying to do more in terms of how we procure, try to use a volume impact to reduce costs. And we want to improve all of the production challenges that we see in the front lines and overcome those technically one by one. And we are gradually seeing the results from those. And those should definitely be reflected in our numbers. We also are trying to utilize digital IT tools In the past, when we receive an inquiry, we would handle one of them, but we want to automate that more. We also want to do standardization, create some patterns. In the past, it could take a lot of time to respond, but we want to respond immediately. And those tools are now becoming available for us. So I believe there are some initiatives that will make it for this fiscal year, not make it, but those are also going to produce some impacts. That's all for myself. Just to check, in terms of your portfolio management, I think that also means that kind of putting in or pulling out units. Are you thinking about that sort of a thing in terms of your portfolio management? So we say portfolio management, First is about three different areas. We have split our business into three years, and depending on the characteristics, our core business growth areas, competitive areas, we are trying to manage each of those businesses in the most appropriate ways. And when we look at each of the businesses, if it's a business that we want to make more competitive, we then first focus on the current product technologies, We add on digital technology to create more added value, or we add technologies used in other products to achieve completely new functionality. Those are some things that we are trying to do to evolve our products and services. And the customers and scope and target gradually change because of that. That is what is included when we say portfolio management. But broadly speaking, what we have been saying from last fiscal year, if the best owner of the business is outside our company, that is of course an option we will consider. So everything is included in our portfolio management. And this is Kozawa, but I would like to supplement. So in your initial question, you said that our profits are not growing, profitability is not growing, and I'd like to supplement about that a little bit. So in the past fiscal year, the average exchange rate was about 150 yen, and now it's about 145 yen. So again, it's appreciated compared to the past fiscal year. It's not just LT&D, but especially LT&D receives impact from the FX rates, and that's where the marginal profits have become a little bit more negative from before. So that's another thing that I believe you should consider. And in terms of what's inside or outside the portfolio, There's not much we can disclose. But regarding that, those changes are not shown inside the outlook that we are showing today. So there is some possibility of something happening. I cannot comment on that. Thank you so much for that. That's all for myself.

Thank you very much.

Thank you so much. So the next question comes from UBS Sasaki-san. Can you hear me? This is Sasaki of UBS. Yes, I do hear you. Okay, thank you. Thank you for your presentation. And I have two simple questions. One is that I'm just being attentive to the free cash flow. For the current fiscal year, you have about 200 billion yen negative cash But even including that, free cash flow is going to be topping $300 billion. That's wonderful. And for this year and the next fiscal year, that's going to be $140 billion, meaning that what I want to say is your cash flow generation capability is getting stronger. Am I right to say that? Because conventionally, with the expansion of the revenue, the working capital also increases exponentially. That was the trend in the past, but including the advances as well, the cash conversion cycle being improved, cash flow generation capability is probably being improved. Am I correct? Well, thank you very much for the question. Well, for the two years, for 140 years, Should we say that is a good figure or not? I don't know whether that is the case, but for the year that just ended, it was very good. Not only for the fiscal 24 and 25, but also including the year before that, 23, we had been generating a free cash flow on a steady basis. So for the FY24, there were some... that came at the really last point of the year so that we got the advance payment. So I think the baseline has been going up for the free cash flow generation. Well, other than the free cash flow, I'd rather say it's an operating cash flow that we're paying attention to. Of course, when we talk about the free cash flow, well, that could change and fluctuate depending upon the timing of the investment, but the operating cash flow has been steadily rising. And for the year that's just ended, well, there were some one of things that we were able to generate quite a lot of demand, as you see. That was quite a new thing, I think. Okay, thank you so much. Well, I think the operating cash flow that you're starting to generate, is that because of the advances with the only reason or are there any changes in the landscape? So I wonder. Well, something outside the one-off, I think we are able to generate profits very steadily. We should say OPM or the net income. Anyway, we are starting to get the profits on the city basis. I think that is the largest factor. And also the working capital or for the inventory assets, we just wanted to have the better efficiency to reduce the lead time so that we'll be able to have better turnover and not have the inventory assets so much. However, the business itself is expanding so that the inventory asset itself is not going to be expanding, but we'd like to have good control over that as much as possible. Okay, thank you so much. My second question is about the energy business. How do you think about that margin? Because last fiscal year, it was 11%. That was a big improvement. And then this year for the revenues, There's a slight increase. However, the margin is planned to go up to 13%. So the energy business OPM margin improvement, how is it going to be delivered and what's the logic behind it? Okay. Thank you so much. So 13%. Well, I just realized that because you mentioned that. Well, in the various businesses that we're conducting now, there are a lot of initiatives that are going on. And for the customer buying business, the service volume is hiking. And compared to the past, at the nighttime of the new project timing, the profitability is improving before taking up those new contracts, which leads to the profitability improvement. So that's a positive contribution to the margin. Whether that is going to be going up on a steady basis, of course, we can't say that. However, that percentage of going beyond the 10%, I would think I would be able to steadily keep that level. And we just want to make sure that we do not lose the opportunities, not getting a lot of bigger complaints. If that's the case, then we think this double digit over 10% will be deliverable on a steady basis going forward. That's my view. Okay. Thank you very much. Thank you.

Thank you, Mr. Sasaki. It's getting close to the end of our time. We will only be able to take one more question. Thank you for your understanding. I would next like to move on to Tai-san from Daiwa Securities. This is Tai. Nice to meet you. Tai-san, I'm sorry. In terms of asset sales actual value, last year it was about $60 billion, and this year your assumption is zero. Is that the correct understanding? Sorry for details. So for the past fiscal year, it's about $70 billion. And this fiscal year, so that's $70 billion is fiscal year 24, and fiscal year 25 is about $50 billion. $5 billion, sorry. And another thing, Kozawa-san, balance sheet transformation, it's related to cash flow, but I think you've been able to significantly advance that in the past couple of years. If you have stable cash flow and your dividend payout ratio is about 30%, could you increase that? And Kozawa-san, you've mentioned this in various places, maybe. you can utilize debt. That's an idea that you've been sharing. So as you pass on to Nishio-san, are there any thoughts or messages you'd like to share right now? Yes. So in terms of dividend, the PIA ratio in the past was 30%, but from DOE, 4% or higher. So we changed the ratio, but it's about 30%. It doesn't change that much if you calculate it, but that's the dividend payout cost that we have right now. And in the future, if there are, if we need to find good investment opportunities, doing investments in the proper way, I think that's going to be a key point for us. And as we do that, if I think we also have the capability to utilize debt, so that's something that we'd like to utilize. And if we still have surplus, share buybacks could be something that we can also consider in the future. But as Aisan did mention, it's going to be about the Nishio and Ito regime that will think about that. So it's who they will think about. And lastly, one more thing, question to Ito-san. So your company, IHI, Cossack Heavy Industries, in the past couple of years, your business results and your stock prices have greatly changed. And I think a lot of it is because there's been great tailwind in terms of demand, environment, defense budget. I'm not saying that the company has not changed, but I think you have been assisted. All of those three companies have been assisted by the tailwinds. And the next couple of years for those three companies, I think we're now going to start to see differences between those three companies. Ito-san, do you have any thoughts related to that? It doesn't need to be complicated. Could you simply state any thoughts that you have? Could you have any messages that you can deliver to us? If we need to wait, the next briefing will wait, but if there's anything that you can comment on today, we would appreciate that. Thank you so much for your question. In the next briefing, I will explain this in more detail, but one thing we want to optimize for all in a more proper way. One of the characteristics we have is that we have various different business areas. We will try to round up what's common to us. So the Mitsubishi Heavy Industry Group can do something wellness and utilize that across various different products. And if we can collaborate horizontally and more properly, we can reduce quite a bit of waste. And that can improve kind of the base profitability level. So that's one thing that we have in mind. Another thing, we want to explore synergies. Our current business, we look at our current businesses and technologies as core And adding something onto that, we have so many different pieces that we already have inside the company and we add on those pieces, we can create new value or create something that can be used in a new area. So that's another thing that we are thinking about. What I've been thinking about internally is that we want kind of even more customers to use us so we can contribute more to the society, So at the current point, there are some businesses where we have lowered share. And that actually means that there's potential for those businesses to really transform and change. So that's another area that we want to focus on. And for our growth areas, energy transformation, carbon neutral, those are a little bit behind. But as our company has been staking, three E plus S, especially the economics and energy security. You want to brush up both sides in terms of our research and development. You want to continue to do that. So reducing hydrogen, carbon capture. We want to create the solutions that have the best economics in the world. And for Our growth air core businesses, gas turbines, will continue to improve the performance of the gas turbines. And we also want to move into newer regions for defense. We will be proposing the five-year plan in this fiscal year. Internally, we have been preparing for this, and we'll be proposing that to our customer. So our core business, also has potential to achieve significant growth. That is all for myself. Thank you so much. And Kozawa-san, thank you so much for supporting us for so long.

Thank you very much, Mr. Tai. So it's time, and this concludes today's briefing. Thank you very much for taking time out of your busy schedule to join us.