Nippon Sanso Holdings Corp

Ladies and gentlemen, thank you very much for taking time despite your busy schedules to attend today's Nippon Sensor Holdings Corporation earnings call to explain our financial results for the fourth quarter FIE 2024. My name is Momiyama from IR team. Thank you for joining this conference. Some housekeeping announcements. First, the conference materials are The financial results, pension, and earnings score reference we have just released. I would like all participants to have them at hand. Next, we have three main speakers today. Hamada, President CEO, Draper, Senior Executive Officer, Group Finance and Accounting Office and CFO, and Katsuyama, General Manager of IR. In addition, Moro Ishii, Senior Executive Officer, Group Corporate Planning Office, Miki, the Senior Executive Officer and CSO, Group Sustainability Management Office, and Yoshida, General Manager of Accounting are also in attendance. As for the program for today, first, Hamada President-CEO Draper CFO and Kajiyama General Manager of IRB will present the fourth quarter financial results and FIE 2025 forecasts along with the presentation materials. We have time for Q&A in the end. Zoom simultaneous interpretation function is available for English and Japanese. Please select the language you prefer to communicate with us in the Zoom control panel. If you prefer communicating in English during Q&A, please set the Zoom audio language to English. There are some housekeeping announcements from IR department. I'm Kajiyama from IR department. I have one notification to make. In the notice concerning dividend from surplus released today, there was an incorrect unit of measure in the total amount of dividends and determined amount of dividends column in the Japanese version of the notice. We sincerely apologize for any inconvenience caused. We have promptly obtained the consent of the Tokyo Stock Exchange to release the correction. The English version of the release has not been corrected. This is the end of my report. Thank you. Now, Hamada-san, over to you. Good evening.

In Tokyo, it's not yet dark outside. But good evening, everyone. This is Hamada of Nippon Sansou Holdings. Time flies and it's now time for us to give this financial report. Thank you very much for participating in our Q4 earnings call and with your busy schedule today. First, the global situation. The situation is not necessarily good. There's a series of conflicts between Israel and the Islamic organization Hamas, and Russia is continuing its military attacks on Ukraine. Geopolitical tensions remain high. And there's an economic slowdown in China, a high level of interest rates in Europe and the United States, and the continuation of the Japanese yen depreciation. It's very difficult to forecast the future. And global inflation does seem to be settling down, though. In this business climate, in our group, we have approximately 20,000 employees. All employees and staff have been making steady effort, and thanks to the cooperation of stakeholders, including customers, we are making steady progress towards the final year goals of our medium-term management plan and its vision 2026. I would therefore first like to express my gratitude. Draper and Kajiyama will explain the details of our business performance later, and what is important now is... the business environment surrounding our group we have to have an accurate understanding of this and based on this we have to work on the goals outlined in NS Vision 2026 as well as the strategy of each segment and we also have to consider the role of holdings, the holding company of the group. These are what I think are important points. I would now like to summarize the Q4 results for the full year. First, we've been trying to perform functions of the industry's infrastructure, and we want to utilize our strength in industrial gas business, and as a result, we've been able to improve our performance. And I think this is the result of the customers appreciating our business. And secondly, we've been trying to utilize communication with stakeholders in our corporate management. Mr. Draper and the other members of the RR team together with myself, we've been increasing a number of meetings with investors. And as a result, we've been able to receive a lot of feedback. And we are trying to utilize that feedback from investors as much as possible in our corporate management. Number three, we have been trying to contribute to the electronics industry development. And I will explain about the numbers later on. We are trying to contribute to the electronics industry development, but last year we were in a difficult situation when it comes to gas demand. Semiconductor companies' plants' utilization rate is not increasing. However, customers in the semiconductor industry... they are very quick to respond to change in needs. So we have to be ready to changes in demand as well. Therefore, investment, including capital investment, We made maximum effort in this regarding Japan and Taiwan. We do hope that the market, including for gases, will recover this year. And number four, pursue operational excellence and work hard and encourage each other among other segments. And operation... does not have a narrow meaning. It's not just referring to manufacturing. When we say operational excellence, we refer to the company's business as a whole, and price management is particularly important. From the end of two years ago, we've been focusing on price management, and this is proving to be effective. As a result, our numerical performance is improving. And number five. Core operating income exceeded the target of the NS version 2026. And in our medium-term management plan, we set the various KPIs. And in terms of profitability, improving profitability is one important KPI. And the core operating income amount, we've been able to grow significantly. which means that we've been able to successfully implement the focus themes that we formulated. And in May 2022, we announced the Mutual Management Plan NS Vision 2026 and explained our initiatives for the four years through March 2026, along with the five key strategies or focus fields described here. will be the third year of NS Vision at 2026, so it will be exactly the turnaround point in the strategic review for the fourth quarter of the fiscal year ended in March 2024. I would like to review the progress of various KPI targets in the first half of the management plan and explain the current situation and future of the electronics business, which we expect as a growth engine for the group. Now, the Medium-Term Management Plan, MTP, NS Vision 2026, sets financial KPI targets and non-financial KPI targets for the fiscal year ending March 2026. First, I will explain the progress of our financial KPIs using this slide. We have adopted five indicators as our financial KPI targets. As indicators for growth, number one, there is revenue, followed by indicators for profitability, core operating income, and EBITDA margin. And as safety indicator, we have adjusted net DE ratio. And as indicator for capital efficiency, we have ROCE after tax. These are the five indicators. financial indicators, and the previous Miniature Management Plan was called ORTIS Stage 2, which ended in 2021. And the following year, there was a lot of uncertainty because of the outbreak of COVID-19 as a result. we decided to delay a formulation of the next medium-term management plan by one year. So we were originally scheduling five years for this current medium-term management plan. It shortened to four years. The fiscal year ended March 2023. The next year, the companies were implementing its current medium-term management plan as Vision 2026. When we formulated this medium-term plan, We set our targets based on the assumptions that the exchange rate around March 2022 were 115 yen to the dollar and 125 yen to the euro, a much higher yen than the current level. However, since the uncertainty of the global economy was high even at that time, We set revenue and core operating income in terms of a range, not in absolute terms, as you can see in this graph. Therefore, if this is converted using the average rate for the most recent period, the revenue will be about 1.1 trillion yen and the core operating income will be about 155 billion yen. Even if we consider the impact of the exchange rate, we can say that revenue and income are on track to exceed our forecast. Return on capital employed is what we use to monitor capital efficiency. And this is the same as ROIC, Return on Invested Capital. ROCE itself was introduced as a key management indicator in 2006, and it has been a familiar indicator since that time. From this NS Vision 2026, we have changed the numerator of the formula from a core operating income to NOPAT, Net Operating Profit After Tax, to make it easier to compare with our competitors. The name of the indicator is also changed to ROCE after tax. We continued our effort to improve financial solidness and we've been able to continue to improve our profitability. As a result, we've cleared our target of 6%. Nevertheless, it is still at a low level compared to these major industry peers overseas, so we would like to improve it for the final year of the plan. Going back to EBITDA margin, compared with the first year of the medium-term management plan, there has been about a three-point improvement, but still There are two points up to our target. In addition, the adjusted net DE ratio has steadily improved despite the earlier redemption of 100 billion yen in hybrid financing in January 2024. Consequently, we think as of May 2024, the credit ratings of JCR and RM Credit rating of JCR is WA- and R&I A+, respectively, each improved by one notch. While some KTRs are exceeding the target set for the final year of the medium-term management plans, as I mentioned before, in terms of profitability, there's still room for improvement. Therefore, we will implement strategic priorities to achieve even higher levels of profitability to achieve growth that exceeds GDP rates in all regions.

Next, I will explain the status of non-financial KPIs. We have third-party certification for our key sustainability data to ensure the reliability for external reference. The latest data is disclosed in the integrated report published in September each year. Please note that the actual figures in this table are therefore not for the most recent term, but for FIE March 2023. As in the previous fiscal year, we expect to disclose results for FIE in March 2024 by September. Yippon Sunset Holdings has established the Sustainability Promotion Committee, chaired by CSO Miki, to promote sustainability management in collaboration with operating companies and the thermals in each region. sustainability management as our forecast group-wide strategy. In April 2023, MSCI score was upgraded from BBB to BBB and FTSE score from 3.2 to 3.5 in June 2023. As a result, the group was selected for the first time for the ESG index and included in the investment portfolio of GPIF. We have been making steady progress of the sustainability management. Together with each of directors, executive officers and employees, we intend to contribute improving management while seriously listening to the requests and comments of investors and shareholders. next i will explain the current status and way forward of the electronics business expected to become a growth engine please refer to the graph on the bottom left in fie 2024 the revenue to the electronics industry accounted for 17% of total sales, less than 20%. However, by segment, Japan and Asia and Oceania account for 28% and 40% of the total respectively. However, the US and Europe account for less than 10%, so I think there is a huge growth potential moving forward. The middle graph shows a split buy in the product in the sales to the electronics industry in each segment. For example, in Japan, sales of the general gases other than speciality gas, number two, the special gases, and three, equipment and construction are mostly balanced. In the Asia-Oceania region, speciality gases account for about 70% that can differ by region. The right graph shows product revenue by segment. As you see, Japan in purple is large. As for the US, it's not zero. We provide nitrogen in a slight volume. Consolidated sales net to the electronics industry declined by 2% year-on-year. This term, we expect an increase of customers' capex and utilization rates. We intend to accelerate our group-wide growth by responding to respective regional demands while promoting the photoelectronics strategy. To do so, the key to the next growth is to offer one-stop solution of supplying gases, nitrogen, dry air and other general gases combined with equipment, construction, engineering and other services in Europe, U.S., and Asia and Oceania to meet the required specification of customers based on the accumulated knowledge, technology and experience of Japanese TNSC for nearly four decades. Again, so the facility and the construction route to be enhanced in Asia and Oceania. And using DX, quality management, inventory management will be progress moving forward. TNSC has the organizational capability to offer solutions from the launch of customers production plants production to after sales service when the plant is up and running. We have been deploying this business in this field We also have sufficient technical capabilities to synthesize, purify, mix and manufacture no quality electronic material gases to meet customer specifications. Based on the idea of operational excellence to enhance the group's overall strength, the approach, long refined in Japan, The proposal and offering of a solution for the electronics industry and practice from each region have been shared among heads of electronics businesses in Japan, US, Europe and East Asia to work together as a group to make further contribution to customers. In November 2021, we announced a plan to increase the production capacity of B286, Deboran, and it was completed in japan and rok during fie march 2024 in china it is scheduled to be completed in february 2025 this timing is adjusted to the clutter operation timing of our customers deborah is a difficult product to handle since it is easily explosive and highly degradable, flammable and toxic. In the production plant of Dibaran, there were some accidents and incidents reported. It is used as a doping agent for boron in the semiconductor industry. And we have positioned Dibrand as one of our strategic products and we want to build on this strong manufacturer position while becoming the preferred supplier of choice for our customers. Next, I will explain about the future investment execution plan. Since Q1 FIE 2022 disclosure, to facilitate better grasping of our overall CapEx plan, we indicate the chart by customer industry. Continuous capex is essential to ensure our continued strong growth into the future. So that is the reason why we consider it is important to make the continuous capex. The backlog as of the end of FY2024 is approximately 170 billion yen of which Environment and hydrogen and social contribution related projects account for roughly 50%. As stated in the note at the bottom, the scope of aggregation is roughly 500 million yen or above, and the smaller amount is not included. We intend to continue indicating our growth potential in this manner, quarterly. to share the results of our CapEx. Now, our CFO, Ned Draper, will walk through the financial results overview for the fourth quarter.

Thank you, Hamada-san. Hello, everyone. Thank you for joining our call. I'll begin with our fourth quarter financial overview, followed by insight into the full year. Then I'll provide an outlook for next fiscal year and update on how we expect to progress in the final year of our midterm plan. Afterwards, a call will be passed over to Kajiyama-san, NSHD's general manager of IR. So during the fourth quarter, for the January through March period, excluding currency, NSHD reported a sales decrease of minus 2.7%. However, these results were negatively impacted due to a conversion of a Japanese subsidiary to a joint operation entity and also due to the ownership interest reduction related to the LPG business in Japan. Excluding both the currency impact and these business reorganization activities, sales were essentially flat year over year, with positive price offset by lower cost pass-through and a little bit softer volume. COI, or core operating income, improved 5.7 billion, or 16%. Ex-currency, COI grew at 7.2% for the quarter. The team continues with solid price management and is working diligently on productivity initiatives and globalization efforts. In addition, core OI margin improved in the fourth quarter versus prior year by 140 basis points to 12.7%, and EBITDA advanced to 21.7%, an increase of 180 basis points. As noted on page 34 of the slide deck, Q4 contains an $8.8 billion non-cash and non-tax-effective gain because of the LPG business ownership interest reduction. That's included in non-operating. This item has a meaningful impact on the fourth quarter and full-year effective tax rate, as well as net income, and should be considered for forward-going projections. Shifting to the full year, sales ex-currency were up 0.7%. Adjusting for both currency and the business reorganization activities previously mentioned, sales were up 2.2%, with strong price partially offset by cost pass-through and volume reduction. COI excluding currency was up a robust 27%, with COI margin expansion of 280 basis points and EBITDA margin expansion of 290 basis points. I'm now going to turn the page over to cash flows, page 37. Cash flows were solid with operating cash flows up $28 billion or nearly 15%. Capital expenditures and investments were up $26.6 billion or 27% as we continue to make investments for our future success. The capital spend was lower than expected as projected spend or project spend shifted to early fiscal year 25%. We don't see major issues with either the underlying construction or construction timeline as a result. We continue to see significant project opportunities ahead and will prioritize capital for those projects that deliver the best economic and strategic value for our investors. In addition, I'm very pleased with our EBITDA to debt position. As you know, in the past, we were near five times, and with the fiscal year 24 closeout, we ended this year with an EBITDA to debt of 3.4 times, which shows solid work and progress made over the past few years. In addition, I'd like to reiterate that our dividend policy remains unchanged. We are committed to issuing dividends to shareholders in a stable and reliable manner. Supporting this commitment, we will propose to our shareholders at the annual general shareholders meeting on June 19th to raise our dividend 20% from JPY 20 to 24 JPY per share. Since fiscal year ending March 31, 2014, we've increased the dividend annually to compounded annual growth rate, or CAGR, of approximately 14%. Page 28. With respect to fiscal year end 2025 budget, first you have to consider that our outlook is using the same average currency rate as fiscal year 24, with the main two currencies being the U.S. dollar at 145.31 to yen and the euro at 157.72 to the yen. Secondly, we expect to maintain strong price management, robust productivity and globalization initiatives, a recovery in electronics, positive trends in food, beverage, home care, and health care, and also positive attributes from internal and external carbon neutral initiatives. We expect steel, automobiles, and manufacturing to be stable, and chemicals to be a bit weak still. As a result, we expect sales to increase 3.6% or 45 billion to 1.3 trillion yen in fiscal year 2025, and COI to increase by 6.6% to 177 billion yen. All businesses are expected to contribute to the NSHD Group's growth and margin expansion. Lastly, in response to the many investor requests for a financial update as to the expectations of the final year of our MTP fiscal year March 26, I'll make a few comments, and we will also include some comments in the May 22 investor meeting. The estimates provided that I'm going to provide assume constant currency with fiscal year 24 actuals, fiscal year 25 budget, and now the 26 outlook that I'm going to talk about. We expect sales to grow at a minimum of 2.5% above the fiscal year end 2025 budget of $1.3 trillion. and the core OI to grow at a minimum of 5% higher than fiscal year 2025 budget of 177 billion yen. To clarify, these are the minimum growth rates that we expect to deliver on top of the fiscal year 2025 budget as outlined on page 28 and is our current expectation for fiscal year 2026. Overall, NSHD remains well positioned to produce solid returns to grow our business in terms of both quantity and quality of earnings, and to improve our financial health. Thank you for your attention. I will now turn the call over to Kajiyama-san to provide a detailed update on segment performance. Kajiyama-san, please.

I will now explain the Q4 performance by segment. I will explain using the financial results supplementary materials posted on our website. Please refer to it if you have it with you. First, CFO Alan Draper already explained our Q4 performance numbers, but if I may touch upon the business environment in Q4, against the backdrop of geopolitical tension in Ukraine and the Middle East, there was continuous supply chain disruption, trade friction, increase in commodity price, logistics costs and labor costs due to inflation, and further weakening of the Japanese yen. While energy prices showed signs of stabilizing in some countries and regions, the manufacturing industry, mainly chemicals, was particularly affected by the economic slowdown in China, and demand in the semiconductor industry has yet to fully recover, although it is set to have bottomed out. Under these circumstances, although there was a conversion of a Japanese subsidiary to a joint operation entity and deconsolidation, which had a negative impact on revenue in Japan because of price pass-through of increased cost in each region and other price management efforts, as well as a continuous focus on group-wide productivity improvement, Q4 consolidated the income increased year-on-year as explained before. I will explain the Q4 results by segment. For the 4-year performance, Please refer to page 20 onward after the information about the Q4 results. The forex impact is calculated as written on page 3 by applying the average rate for each currency for the period under review as the base rate and comparing it to the previous year. One yen depreciation against the US dollar has an impact of approximately positive 10%. 2.4 billion yen on revenue and positive 350 million yen on cooperating income, while against the euro, impact of about 1.9 billion yen on revenue and 350 million yen on core operating income. The consolidated Q4 results for the fifth year ended March 2024 were just explained by TFO Alan Draper, and I will now explain the Q4 situation by segment. First, Japan, on page 15. Revenue was 108.8 billion yen, a decrease of 11 billion yen, or 9.2% yuan a year. Excluding Forex impact of approximately positive 100 million yen, revenue decreased by 11.2 billion yen or 9.4%. The factors behind decrease in revenue were the significant impact of conversion of a subsidiary from on-site production facility to joint operation and the deconsolidation of a residential use LPG gas subsidiary as well as impact of lower shipment volume of packaged and bulk air separation gas which are core products and LP gas and weakening of electronic material gas shipment volume. In equipment and installation, revenue of industrial gas-related products increased, but for electronics, since sales of relatively large equipment and installation projects were proportional to the progress of the projects and were not concentrated at the end of the fiscal year, there was a year-on-year decline in revenue. As for segment income, against the backdrop of soaring labor and logistics costs, we continue to focus on price management, but because of weaker shipment volume of air separation gas and electronic material gas, as mentioned before, and costs for deconsolidation of a subsidiary, dispersal of underutilized assets, facility maintenance and repair, as well as one of office and research facility relocation costs. Segment income was 9.7 billion yen, a 1.8 billion or 15.7% decline year-on-year. There was some positive Forex impact on segment income, and excluding this impact, segment income declined by 9.4%, and excluding one-off cost in Q4, segment income was almost flat year-on-year. Next, Q4 performance of gas business in the United States on page 16. Revenue in the U.S. was 89.8 billion yen, a year-on-year increase of 10.4 billion yen or 13.1%. Excluding for its impact of positive 9.6 billion yen, revenue increased by 700 million yen or 0.8%. Shipment volume of core product air separation gas increased, and although there was a decline in sales of industrial gas-related equipment and installation, electronic sales increased, and we continued price management effort, which led to an increase in segment revenue. Segment income was $14.1 billion, and a year-on-year increase of $3.2 billion, or 28.7%. Forex impact was positive $1.3 billion, and excluding this impact, second segment income rose by $1.8 billion, or 15.2%. Shipment volume and separation gas was favorable, and in addition to benefit from price management in line with cost increase and continuous effort to promote productivity improvement program, there was an increase in segment income. Next, gas business in Europe, on page 17. Revenue in Europe was 79.3 billion yen, a year-on-year increase of 9.8 billion yen or 14%. Forex impact was positive 8.8 billion and excluding this impact, revenue increased by 900 million yen or 1.3%. Shipment volume of core products and separation gas declined slightly for packaged and bulk gas, but due to benefits from price management in line with commodity price hike, there was an increase in revenue. Segment income was 13.6 billion yen, a year-on-year increase of 4.1 billion or 43.3%. Forex impact was positive $1.3 billion, and excluding this impact, the increase was $2.8 billion, or 26.7%. The main factors contributing to increase in segment income were effective price management, productivity improvement, and cost reduction effort.

Next, Asia and Oceania on page 18. In Asia and Oceania, shipment volume of the core product namely the packaged and the bulk separator gases is declined, and the sales of electronic material gases in East Asia fell substantially year-on-year. Meanwhile, sales volume increased in LP gas, largely sold in Australia. As a result, revenue increased by ¥3.8 billion year-on-year to ¥40.8 billion or 10% increase. Forex impact is positive ¥3 billion. Excluding this impact, the sales in the business increased by ¥700 million. Next, segment income increased by ¥100. the 100 million or 4.5% year-on-year to 3.2 billion yen. However, forex impact had a positive impact of 300 million and excluding this impact, then the profit was decreased by 100 million or negative 3.5%. Next, thermals on page 19. Revenues amounted to $7.6 billion, an increase of $100 million or 0.7% year-on-year. But excluding forex impacts of approximately $100 million, revenues were down slightly by 0.3%. Sales of sports bottles in Japan, which accounts for more than 80% of sales, was strong, while sales in ROK and production plants in Asia were flat year-on-year. On the other hand, the sales at equity method affiliates were weak. Segment income was 1.2 billion, a decrease of 300 million or 20.5% year-on-year. Excluding the slight forex impact, the profit decreased by 22.8%. Although we set new prices for new products launched from time to time, taking into account the weaker yen, we were affected by higher production costs due to the ongoing depreciation of yen. That concludes an explanation of each segment performance in Q4. As said, page 20 onwards show the full year results, as explained earlier. So this was already covered by CFO and Alan Draper, so I will make a slight additional explanation Non-recurring items in the full-year results for FIE March 2024 on page 21 amounted to 6 billion yen, of which the breakdown as shown on page 34 includes an accounting gain resulting from a change in the shareholding ratio of subsidiary in Japan. IFRS and operating income including non-recurring gains and losses was 172 billion yen, an increase of 52.5 billion yen or 43.9% year-on-year. In the appendix from page 31 onwards, the key management indicators, the summary cash flow and the summary statement of the financial position for FIE March 2024 are presented. In the key management indicators on page 35... ROCE after-tax, which is also included as a financial KPI in MTP, increased by 1.3% year-on-year to 6.7%, and the adjusted DE ratio improved significantly from 0.81 at the end of the previous term to 0.74 times. CapEx and investment also increased steadily towards the future growth of the company, with the year-on-year increase of 26.1 billion yen to 120.8 billion yen. This is the end of the explanation of the fourth quarter results for FIE March 2024. CA4 has already explained the forecast for FIE March 2025, so I will skip that part. On May 22nd, Our CEO, Mr. Hamada, and our CFO, Mr. Alan Draper, will hold an earning results briefing. The heads of each segment will participate in the briefing to discuss our initiatives for the current term, so I would be grateful if you could attend and deepen your understanding of your business. This concludes my explanation. Thank you very much.

Mr. Hamada.

President Hamada, Mr. Draper, CFO, and Mr. Kajiyama, head of IR, thank you very much for our presentations. For now, we would like to have some time for questions and answers. In addition, there are some points to keep in mind. As mentioned at the beginning of this conference, if you would like to communicate in a Q&A session in English, please join us via our English audio line in Zoom. Please note that when Mr. Draper, an English speaker, answers the questions, the Japanese audio on Zoom will be translated by simultaneous into British. In addition, we would appreciate it if you could pay attention to your talking speed, talk at a moderate speed, as we will be providing interpretation audio by simultaneous interpreters. Next, I would like to explain the procedure for today's Q&A session. First, please raise your hand by pressing the Raise Hand button on the control panel displayed at the bottom of the Zoom screen. Then click on the Q&A button and fill in your name and affiliation. You do not need to type in your question. Once we designate you, please state your question. before your question please state your name and affiliation and then ask your question in a one question one answer format if you wish to cancel your question please press the raise hand button again and put your hand down please note that your questions will be posted on our corporate website later along with our presentation in the form of a transcript of the recorded meeting We will now take your questions until the scheduled closing time in a first-come, first-served basis. Mitsubishi AUFG Morgan Securities Watanabe-san? Morgan Stanley MEFG Securities, sorry. Watanabe-san, please tell your question. From Morgan Stanley, MEFT's Grace, this is Watanabe. I have two questions, or three questions. I will be brief. Number one, about the Japan segment. Q4. There's one of... item one of expense and including that uh performance was almost flat year on year 1.8 billion yen one of expense is that the correct understanding please allow me to confirm and in japan a cylinder gas price hike is taking place and is there a if a last minute demand is having an impact on revenue please indicate so this fiscal year um um are you have you already been able to make some price hikes this fiscal year please comment if that is the case thank you very much cylinder price hike we are not seeing a significant last minute demand not as much as to say last minute demand we emphasize the fact that there's uh Senator, a price hike, and we have been taking action, and after the start of the new fiscal year, a price hike is to be reflected. And the one-off item, I'd like to call upon CFO Allen to explain about this one-off item.

Thank you for the question. Your understanding is correct. You know, between the TN energy deconsolidation, some special refurbishments we had to do at a plant, as well as a relocation that we did, those items are pretty much non-recurring from our normal standard. And if you back those out, we're about flat year over year on profit. Thank you.

Thank you very much. My second question. About the U.S. segment, Q3, cooperating income, 12.4 billion yen, up to 14.1 billion yen. There's an increase in the profit level and margin improving from 14.2% to 15.7%. And from Q3 to Q4, there's been an improvement in the U.S. Could you please explain about this improvement in a bit more detail? This is my second question about the U.S.

This is Alan Draper. I'll take that question. So overall with the U.S. business, there's a couple factors. One is they've been maintaining price actions, and the overall underlying costs have been slowing down a bit or moderating. So they're getting benefit with higher pricing and less costs and lower costs as we go along. While there's still inflation, it's certainly not to the levels that we saw, you know, three, six, and nine months ago. So the primary drivers are related to maintaining price with the moderating costs.

Thank you very much. My third and last question is about capital investment, CapEx. The fiscal year that just ended, on an annual basis, I think you mentioned about 140 billion yen was the full-year CapEx. But I think actuality, competitive forecast 140 billion yen, I think actual was 120 billion yen. Please refer to any delays and how much capex are you expecting for this fiscal year, FYE 2025. If you can comment by business segments, if there are any trends by segments, please comment on them as well. Concerning capex... The actual capex was below the plan. That is correct. And I had a discussion about details with CFO the other day, and the U.S. large capital investment project is – there's a timing difference of this to the next fiscal year, and there were some orders that we could not take, and as a result, capex is lower than originally planned. However, there's some capex projects – from last fiscal year to this fiscal year. And this means that there are some projects that we are likely to receive orders for this year. And I would like to call upon Alan to explain the numbers later on. But we are expecting an increase in CapEx this fiscal year. Alan, if you could please explain in more detail.

Thank you, Madison. So this is Alan. So overall, we're expecting CapEx next year to be probably about 165 billion yen. So overall, you know, some carryover from last year, as Madison mentioned, and then obviously we're still having an uptick in spending. So probably around 165 billion or maybe just a little bit higher than that, but right in that range. Thank you.

Thank you very much.

Thank you. Thank you very much for the questions. I've got three questions as well. FIE, March 2025, new year's volume forecast. The sales will exceed 3.6%. Is that due to volume increase or price hike? Could you give us a sense? That's question number one. Thank you for the question. By each OPCO's respective categories, and depending on the customer profile, volumes are different. So it's difficult to say in a simple way, but roughly speaking, we do not expect to be in the volume increase For existing customers, the volume increase is not as much. As said, electronics, volume will recover. And this is primarily in Europe as a new business or they're cultivating new users. Medical and healthcare, volume will increase. So for existing customers, I'd say at the outset, due to geopolitical issues are impacting on and we had a huge concern on it. But in any business areas, we do not expect a huge decline. It's going to slightly lower or flood. And there are some other in the business expecting the recovery. More in details, Alan, if you have any further supplemental comment, please.

So as Hamad Hassan mentioned, certain markets and segments may have some negative volumes, but in total for each segment, we're not providing budget detail level by segment, but we do see positive volume contributions for each overall segment. So while there's some puts and takes by market within a business, we're expecting positive contribution from all segments on a volume perspective.

Just one supplement. The pricing. The price revision. If necessary, we will do. We will take price action. But utility costs. That is the biggest impacting factor for us. The power rate trend. Depending on the country, the situation is different. but no huge spike is anticipated in any region so rather than taking pricing action but we will ensure the price for the purpose of ensuring stable supply because there are some other factors of the labor cost increase and so forth, other than the utility cost. So taking into consideration those, then we maintain the price or offer some price hike. That's all. Thank you. Thank you very much. The second question is also related to pricing. The Japanese price hike has been announced since February, so what is the progress so far? the price hike in Japan primarily for cylinder gas so now this has been executed for the marketing helium putting aside the helium but now we are proposing price hike for cylinder gas basically price hike actions has been initiated since Q4 last year. But the result will come out from April onward. So honestly speaking, we don't see much contribution due to price hike yet. That's all. Thank you. Last question, also on price. In Europe, in Q4, Pricing trend, could you share with us? Energy price has been gone down in Europe as well. On the other hand, non-energy dependent in the price hike might have been executed. So what has been the trend of the prices in Europe? The details, I don't have the data with me, so I will hand over to Alan for the details. Not just in Europe, but in the U.S. as well, there are some pass-through mechanisms incorporated in a contract. When the utility cost has been gone down or up, then those are passed on to the price. So depending on the market in Europe, it's difficult to tell the details, but due to the cost pass-through mechanism, there are the sum and the product price being decreased due to the utility cost and so forth but mostly the price has been maintained that's my interpretation but depending on the region and depending on the type of gas there are some variations so if Alan can supplement Please.

This is Alan. So as Hemad Hassan mentioned, contractually in the U.S. and Europe and places in Asia as well, we have GDP or inflation factors that will have adjustments on our contracts. So those continue no matter what the situation is. So we follow the contracts from that perspective so that will continue forward. When it comes to, you know, how did Europe do, they had basically low single-digit pricing in the fourth quarter, so they're still maintaining some price year over year. And they're also, as Hamad Hassan mentioned, have significant pass-through and surcharge reduction because the costs have been moderating. Thank you.

Anderson, thank you very much. Thank you very much for your question. Next, UBS Securities, Omura-san. This is Omura from UBS Securities. Can you hear me? Yes, we can hear you. Thank you. First, about capital investment backlog. 170 billion yen is the backlog written in the presentation material. And what percentage of this would be project backlogs that constantly generate cash flow? Thank you very much. I'm trying to look up if Mr. Kajiyama or Mr. Draper has the numbers, please explain. Your question is about CapEx. So a lot of the CapEx plans are over the long term. Rather than one-off projects, in a lot of our CAPEX plans, we are expecting to recover costs. We are expecting a payback. I don't have the specific percentage in mind, so if either Kajiyama-san or Alan has the numbers, please.

This is Alan Draper. So overall, when you look at the projects that we have in this list, it's all projects that are over 500 million, 500 million yen. So we do have a conglomeration or aggregation of projects that I'll say are growth projects, projects that are cost reduction projects. replacement projects. So we don't have the detail to provide the exact cash generating, but cash generation is not just revenue. It's also reduction of costs. But it's a combination of those details, and we don't have those available, and I don't think we've ever disclosed those. So I apologize for not being able to answer more clearly. Thank you. Mr. Morishi has a comment.

170 billion yen out of this capital investment backlog, almost all are capital investment by the company that generates revenue. And I'm not sure if I answered your question accurately or correctly, but after completion of all projects, we are expecting either revenue or profit. That's how the company understands all of our CapEx projects to be. Number two. And Mr. Hammer, at the outset, you mentioned that... You tried to fill in the gap between the company's understanding and the stakeholders' understanding as much as possible, and you tried to utilize feedback from stakeholders and corporate management as much as possible. What were some of the main gaps between understanding between the company and stakeholders, and how do you intend to utilize feedback from stakeholders in your corporate management going forward? Could you please explain in a bit more detail? Alan Draper was the person who communicated most with the stakeholders, so I would like to call upon Alan to explain as well. But there was not necessarily a gap between our understanding and the stakeholders' understanding, but we are working on operational excellence to try to maximize revenue. And in carbon neutrality, we are working on various initiatives. Considering our main business, gas, there is oxygen, nitrogen and argon, the gas products. This is well understood by many investors, but in order to supply gas, what are we doing? In order to supply gas, what kind of cost reduction do we have to conduct? This kind of explanation was not made in detail from the company, so we received questions as to what kind of efforts we are making in this regard. So we explained what we are doing to improve operational excellence and what initiatives we are taking for productivity initiatives. And Through this explanation, we were able to discover that we have to explain in this much detail. We are trying to implement various initiatives, and it was not that there was a major change in our initiative or the direction that we are heading towards, but in order for us to be understood better by stakeholders, we discovered that we have to explain in more detail. Alan?

Thank you. This is Alan. So overall, some of the things that we've heard from investors over the last several years, one is in regard to backlog. We want to be able to be more transparent in our spend, what our backlog is. So that's something that was introduced as a result of investor interest and investors sending the message that more information is wanted. In addition, we've been working hard at coming up with additional variance reporting similar to our competitors. Therefore, we can dissect the total group by sales volumes versus currency versus pass-through versus price. And that's something that I'm starting to refer to and communicate on these calls when you ask questions about price. So that's another item that was really requested by investors. So we listened to an investor request. Those are two examples. The other items that have also been asked, we've heard comments about equity compensation. Right now we don't have an equity compensation program. It's something we'd like to introduce, but we obviously have to have the board of directors of the compensation committee to be engaged in that. But it's something we've heard from investors, and we like the idea, and we'd like to proceed with that. So that's another example. And maybe the last one that we hear about is we have a lot of – we don't have a lot of specialists. We have a lot of generalists. and we probably need to expand our specialist area. So, for example, someone who's a specialist in taxes we have to look at. Maybe a global CIO is something we have to go towards. So these are some of the additional things that we've heard from investors. We've also wanted to do them ourselves, and we're looking into doing those in the future. So these are some of the ideas and communication we've had with investors. Thank you.

Thank you very much. By the way, about shareholder return, what kind of discussions did you have with stakeholders about shareholder return and what conclusion do you have? There were no particular numerical requests from stakeholders with regards to shareholder return, but we have continuously mentioning that. investment and return would have to be well balanced. We have to repay our debt and we have to be able to strike the best balance. And in addition, a dividend payment amount, we have to disclose the numbers as specifically as possible. At least I have not heard of any specific shareholder return, a numerical cost from investors. But here again, Alan has been communicating more, so if you know something.

No, this is Alan. I don't have anything to add. It was more of a discussion on trying to tie executive compensation to equity performance and shareholder returns. So we've not touched on anything in specifics, but it's something that we're interested in and would like to pursue in the future. Thank you.

Well, thank you very much.

Thank you for the questions. Next, Diver Securities. Ikeda-san, please. I'm Ikeda from Diver Securities. I just have one question for confirmation. On page 8, financial KPI to be enhanced for the higher level. So what sort of concrete target and what level is defined as high? Maybe you can touch upon that the next weeks in the meeting. Thank you for the question. As for the concrete figures, we are not ready to mention. But we have a rough picture. But There are some items which are not hitting the target, especially concerning profitability-related indicators. So we aim to achieve those indicators. And core or I, how to perceive. we are not planning the review of MTP. So in the coming year or two, our forecast is considered by the finance and the corporate planning. So Alan, could you comment on that?

Yes, so this is Alan. Overall, we're still focusing, as Hamada-san mentioned, on the EBITDA margin target, for example. I think our target across the group was to have above 17% EBITDA margins. So we're not there yet. We're still pushing on companies to make sure they improve their margins. whether that be through pricing actions, productivity, cost reduction. So we'll continue to target that one. So, for example, EBITDA, we're still fighting and pushing towards our midterm plan goal that we set out two years ago. So that's an example. Core OI and, obviously, EBITDA quantity is well above where we expected, but we're still working on that quality of earnings. So that's an area that we're going to still work on and target, but we'll provide a little bit more detail on the next meeting on the 22nd. Thank you.

Thank you.

Thank you very much for your questions. Next, CLSA Securities, Chosan.

Yes, good afternoon. This is Yifan from CSA, and thank you much for taking my question. So I have two questions in hand. So first, congratulations on your delivery of solar results. And basically, my first question is regarding the semiconductor gases, because we would expect a recovery in the semiconductor gas demand. And could you elaborate more on your growth in this area? And is there any kind of applications in DRAM as well as the HBM applications? And that's about it.

Thank you very much.

Semiconductor material gas. There are various kinds of semiconductor material gases, and NSHD is not supplying all types of gases, but particularly memory-related, NAND, DRAM. There are large users in that field. industry and production volume for these kinds of thermoelectric material gases are likely to recover significantly. However, as of now, have we seen a robust recovery? Not yet. From the end of last year, we've been discussing about when we can see recovery, not only within our company, but including experts as well. But gradually the timing of recovery is being delayed and in our company, when are we going to see recovery in numbers and when can we recover to below the decline? We have to wait until this year or the beginning of next year to clearly see when we can see a full-fledged recovery. Therefore, we do not expect a significant contribution this fiscal year. A third or a quarter, we do expect recovery, but not full-fledged recovery. And various new types of gases are being requested. Diborane, B286, for example. has been a very important semiconductor material gas that's been used from before, as well as etymolated gas in the 2-nano or 7-nano. They are now taken for granted, but... Highly integrated semiconductor-related gases we are seeing an increase in demand here, and I'm not sure whether I can call this a gas, but various materials used in lithography device as well as equipment that we're offering as well. And here we are expecting earlier recovery than recovery for semiconductor-related gases.

Thank you much. Could I have a rough idea of what is the breakdown of your applications? So could you say about let's say 30% is logic and 70% is for memory, and within memory is about half is DRAM or NAND? Could we say that or not? Thank you.

It's a very difficult question.

As I briefly mentioned before, memorially related. Because of a customer situation, I cannot give you a breakdown of memory or DRAM, NAND or DRAM. But a gas demand is extremely high for memory related. I have 40 years experience. but I'm not an expert, but I think about 70% is for memory-related gas. I think about 70% of semiconductor-related gas is memory-related. And other than that, there's gas used for highly integrated semiconductors. And there are also highly special materials that are not gas. And we have just started to offer these equipments. Not so much time has passed since they were developed, but we do have those products as well. In terms of price, there might be a significant impact, but in terms of volume, memory accounts for a very large portion of our semiconductor business. Memory and logic semiconductors used for automobiles, for example, has not dropped so much. But memory as a whole is declining, so that impacted our company's performance as well. That's the sense I have. Thank you.

Thank you. And my second question comes to your relationship with Message Chemical. I think it's a very sensitive and very difficult question, but could you give us a little color? Because your market cap is about 50% higher than your parent company. Is there any kind of request from your parent company to help them or any kind of things you can do to contribute to their growth or any kind of potential kind of changes according to future prospect? And that's it. Thank you.

Yes, it is true that market cap at MSHD is higher than our parent company, but the relationship between us and Mitsubishi Chemical is based on a contract. And... just because there's reversal in the market cap, the relationship is not to be impacted. And I think you are aware very well of the fact that NSHC is making a significant contribution in terms of revenue because our main business is industrial gas and the industrial gas performance is at a very high level and we've been able to increase price and we are working on operational excellence. Because of these reasons, we have been able to generate very solid revenue and this is A strong performance, of course, will be returned to Mitsubishi Chemical, and we would like to continue our effort. No more or nothing less than that. We are not considering a change in relationship between NSHD and Mitsubishi Chemical. Thank you.

And thank you much. Very helpful. And that's it.

Thank you all very much for your questions. In the interest of time and the questions that we couldn't take, we would like to respond to it on a one-on-one basis. With this, we would like to conclude the fourth quarter FIE 2024 earnings call. The content of today's conference call will be posted on the IR website based on the recorded data. Thank you very much for taking time out of your busy schedules to participate in today's conference call and for your many questions.