Nippon Sanso Holdings Corp

Thank you.

Hello, everyone. Thank you very much for taking time out of your business schedule to attend Nippon Sansa Holdings Corporate Earnings Call for the first quarter, where the financial results of devolved fiscal year ending in March 2025. My name is Momiyama, and I'm in charge of IR team. I'd like to give some information about today's conference. First of all, the conference materials are the financial results, and earnings call reference materials that we have just released. I would like all the participants to have them at your hand. Next, we have three main presenters today. Representative Director, President and CEO Hamada, Senior Executive Officer, Group Finance and Accounting Office and CFO Draper, and General Manager of IR Kajiyama. Also, Kubo, Executive Officer, Group Corporate Planning Office, Miki, Senior Executive Officer and CSO, and Group's Sustainability Management Office, and Yoshida, General Manager of Accounting, are also in attendance. As for the program today, at first, Hamada, President and CEO, Draper, CFO, and Kajiyama, General Manager of IR, will present the first quarter financial results along with the presentation materials. We will have time for questions and answers at the end. Please note that today's session will be conducted bilingual in English and Japanese using the simultaneous interpretation function via Zoom. Please select the language you would like to communicate with us in the Zoom control panel using interpretation button. During the Q&A sessions, if you wish to communicate in Japanese, please set the audio to Japanese, and if you wish to communicate in English, please set the audio to English. We now would like to ask President Hamada to give his presentation.

Good evening. This is Hamada speaking from Nippon Sansou Holdings. Thank you very much for participating in our Q1 earnings call out of your busy schedule. As I always say, I would like to once again touch upon the global situation because that does impact our company's business. Unfortunately, regarding the global situation with a series of clashes in Israel and ongoing conflict around Russia during the past few months, basically geopolitical tensions remain high. In the global economy, under such circumstances, compared with the COVID-19 times, it is indeed a fact that we are seeing recovery in the US and Europe. Interest rates have remained high for a long time, and in Europe, In June, there was an interest rate cut in Europe, and there are expectations of a rate cut growing in the United States as well. In Japan, for the first time in a long time, interest rates have been restored, and I think it is because of the impact of these factors that the depreciation of the Japanese yen has finally come to a halt, as some people say. On the other hand, as you may know, There are major elections being held one after another in countries around the world. This year is said to be a global election year. That is what the media says. I will not comment on the individual elections here. doing business with a lot of companies in major countries. And regardless of whether we do business with major or developed countries or not, changes in government in major or developed countries may have a significant impact on economies of those countries and regions. Therefore, we are closely monitoring whether there's going to be an impact on our gas business. We are closely monitoring the policies of each country and their impact on the global situation, including the foreign exchange rate. We think we have to closely watch the trends in the world. In this business climate, our company is making steady progress towards And with the sincere efforts of our employees and staff, customers, as well as our other stakeholders, we are making steady progress towards the final year goals of our medium-term management plan, NS Vision 2026. That is the impression we have of the first quarter. And in this environment, it is important for our company to continue our business, maintain a stable supply while also growing and enhancing corporate value. To this end, we will clarify how we will proceed with the focus fields of NS Vision 2026 and the strategy decided for each segment. as well as what we need to do to firmly establish the role of the holding company, NSHD Holdings, and take effective measures. That is how we would like to operate the group as a whole. Details of our business performance will be explained later by Mr. Alan Draper and Mr. Kajiyama. What was the first quarter like for us, if I may summarize? The key highlights were that we continued the productivity improvement effort and price management. And during the past one year or one and a half years, we've been making this effort, and this is impacting our performance. We would like to continue such effort. Secondly, we have continued to seize opportunities to expand business continually. Mega deals, it's not that we pursued mega M&A deals, but as was explained later, we are making sure to seize opportunities towards capital investment for future growth. And number three, diversity. increasing women, female engagement, engaging people with various ethnic backgrounds. In the way we do business, how we perceive our business, we want to ensure that we have diversity before we make decisions. We worked on initiatives with greater emphasis on diversity. And number four, We've been trying to maintain a strong commitment to improving corporate value. This is taken for granted as a listed company. Stakeholders and shareholders, what is important for all of these people, we need to be clear on that. And for that, we want to always aim to improve and enhance the corporate value globally. the situation is full of uncertainties including the economic environment whatever happens in the world around us we have to be able to respond promptly and in an agile manner with regards to customer and social trends and we mainly supply industrial gas and We have to think about the surrounding environment around our customers. There are indeed various kinds of users, and not everything will impact our company directly, but we also have to be cognizant of what factors impact our customers and the stakeholders. Bearing that in mind, it's important for us to respond promptly to customer and social needs and social trends. In May 2022, we announced the Medium-Term Management Plan, NS Vision 2026. And as written here, we set out five focused fields. and explained our initiatives for the four years through March 2026. And this information remains unchanged. Today, we would like to introduce to you a number of themes that relate to our meeting to management plan. First, in June of this year, a new management structure was approved at the ordinary general meeting of shareholders. I would like to introduce to you our new management structure. We would also like to explain about our recently revised compensation for remuneration system or compensation system for internal directors as a result of TSE recommendations and so forth. We have decided to revise our compensation system for internal directors. And we also want to explain about the recently announced business acquisition in Australia as a main topic. Following the ordinary general meeting of shareholders held on June 19th, we were able to conclude this shortage meeting successfully, and we established a new management structure, including one newly appointed director. Currently, we have nine directors. The total number of directors remains unchanged. The majority of these directors are independent outside directors. Five of them are independent outside directors in order to maintain management independence. On the right-hand side of the slide, we show the expertise and experience of each director. As you can see, our board of directors is made up of experienced members from diverse backgrounds. In a sense, this is one important point to ensure diversity. Including myself, there are four internal directors. And three of the four internal directors are well-versed in their respective businesses. They are professionals in their respective businesses. When I worked for TNSC, I was head of the electronics division and president of the sub-Syria. I do regard myself as being a gas professional. And Raul Giudici. a newly appointed director and president of the European business, has many years of experience in sales and marketing. And he is one of the four internal directors who are presidents of original companies. And he is responsible for sales and marketing in the European industrial gas industry, who succeeded Eduardo Hostet as head of a European business. He's based in Italy. And Eduardo El Hoste was based in Spain. We do hope that he will introduce a slightly different perspective. But Europe is not necessarily large, and Raoul also has experience in other businesses besides Italy in Europe, and he has experience traveling around in Europe. I think he's about 52 years old or 53 years old. He's very young, and he's a member of a new generation of management. From that perspective as well, we look forward to having him introduce new perspectives in taking initiatives. The board of directors also established a voluntary advisory committee called the Nomination and Remuneration Advisory Committee, which is headed by Mr. Nagasawa, an independent outside director. After discussions at the nomination and remuneration advisory committee, we appointed Rao as director and revised the compensation system for internal directors. I would now like to go on to the next page to explain about our compensation system. The board of directors resolved to make three changes to the internal director's compensation system. In order to achieve the performance and non-financial targets in our medium-term management plan and to continuously enhance our corporate value, we introduced more incentives in our compensation system. First, we added ROCE after-tax as a KPI for performance-linked compensation. In March 2023, the TSE, Tokus Stock Exchange, requested that companies take steps to implement management that is conscious of the cost of capital and stock price. And this request included examples of measures such as including improvements in return on capital in the indicators for calculating executive compensation. Our company had originally set ROC after taxes, one of the financial KPIs for a medium term management plan. Against this background, after discussion, we decided to reflect this in executive compensation and by so doing, we are further clarifying our commitment to continuously improving capital efficiency.

Secondly, we will reflect as non-financial indicator. And this is something that we have included as KPI in our material management plan and GHG reduction through environmentally friendly products. And so we are really going to reflect that. Environmental initiatives, particularly efforts toward carbon neutrality and GHG emission reduction, are strongly requested by our shareholders, investors, and other stakeholders. and this should be taken for granted, and we have incorporated them into our incentives to achieve these non-financial indicators. This was adopted as an indicator of progress made in reducing GHG emissions contributing to our customers through our products and technologies. And so we ought to look at the progress made in reducing the customer's GHG emissions. And so GHG emission contribution by a company should be continued. And so we will aim for continuous increase in our contribution to GHG reduction. Thirdly, the compensation for the three Nippon Sansa Holdings directors who serve as presidents of operating companies in Japan, the US, and Europe will now be reflecting performance and non-financial indicators as well. As you can see, the composition, well, the internal directors, but excluding myself and the other three, are the well, presidents of the regional companies in Japan, the US and Europe, and they are serving as the director of the holdings. And so we will, well, newly reflect performance and non-financial indicators as well. And so far, up until now, the holding directors have received only fixed compensation, but By clarifying commitment to achieving the group-wide target, we will further promote mutual collaboration across businesses, and by reflecting all these, for their compensation. So we are to really have this stronger sense of ownership by these people. And this time around, these performance and non-financial indicators will not only be reflected in a compensation of directors, but also Nippon Sansa holding executive offices as well. within the holdings and the duties performed by the executive officers are great. And so for these four people, we would like to have a sense of solidarity and we would like to have the management team to work together as one team to achieve our business targets and improve our corporate value so this is not just limited to directors but also applied to the executive officers the next topic i wish to cover is the acquisition of lp gas business in australia which was announced on our website just the other day the SPA Gas, Super Gas, an Australian business civil company, is primarily engaged in production and sales of LP gas and also produces and sells industrial gases. And I just want to briefly explain the history and background of our business in Australia. The company entered Australia in 2015 when we acquired Renegade, a distributor of LPG and industrial gases. And then, well, this was the very first entry point. And immediately after that, in 2016, Well, it expanded its business area by integrating super gas, manufacturing and selling LP and industrial gases. The companies for business basis, as shown with the blue or deep blackish dots on this map and currently located on the eastern side of Australia mainly. And this is because for major industries other than mining are concentrated predominantly in the east. And though the company does operate with basis in the north and west, but the acquisition this time will significantly increase the scope of its business operations. An agreement with its parent company, West Farmers Chemical Energy and Fertilizers, was concluded to acquire Clean Heats LPG Sales and Fertilizers LPG Sales Company in northern and western Australia. And currently, the transaction is under review by the Australian Competition Authority. And once this process is passed and the basis indicated by red dots on the map, it will be added to our business and expanding our LPG supply network to cover the whole business. land area of Australia. We also expect synergies in industrial gas business. As I said earlier, the western part of Australia is a region with very active mineral and other resource mining industry. And as the importance of mineral resources is increasing rapidly, our inclusive of the rare metal resources in China have been very much looked at. And so we will leverage the newly acquired sales basis to provide services to the regions continuing to grow into the future. and then reach out to the potential prospective customers in this industry to develop new sales channels. Regarding the timing of closing, as I mentioned earlier, the transaction is under review by the local competition authority. After we pass this review, we would immediately plan to acquire the business, and we are expecting this to happen around autumn this year. Next, I'd like to talk about our future investment implementation plan. Starting from the first quarter, the financial results for the fiscal year ending in March 2022, we've been presenting a chart showing the breakdown of CapEx plans by customer industry to provide the total picture of capital investment plan. And continuous capital investment is essential for us to keep growing stronger. So I think this is really critical and essential. Backlog as of June 30, 2024 is approximately 180 billion yen. Compared to the fourth quarter last year, we have a slight increase, approximately a little over 170 billion yen, and we have seen some increase from April to June. Well, there are some projects which were removed from the backlog, and some were added, and some of the increase in the amount is coming from the foreign currency denominated investment projects amount, which have been inflated due to the currency translation effect. So, in terms of the number of projects, however, the number of completed projects and that of newly acquired projects are almost equal. And I'd like to refrain from going into the details of the past projects and approximately 80 billion yen worth of the backlog and out of which environmental and hydrogen society contribution related projects account for approximately 50% or so. And so roughly speaking, these are really accounting for about half. As noted at the bottom of this slide, the scope of this calculation includes those projects worth about 500 million Japanese yen or more, and does not include projects worth less than that amount. And we would like to continue to demonstrate our future growth potential in this matter on a quarterly basis. Well then, and now I'd like to turn over to Mr. Draper, CFO, to give an overview of our first quarter financial results.

Thank you, Himada-san. I appreciate everyone attending the event today. Please turn to page 13. For the quarter April 1, 2024 through June 30, 2024, revenue increased by 6.6%. If the tailwind from the weekend is excluded, revenue decreased minus 1.1%. Core operating income increased 18.7%. Ex-currency impact, COI was up 8.8%. Core operating income margin percentage increased to 14.7%, up 150 basis points. And EBITDA also improved to 23.6%, up 160 basis points. The year-over-year growth and margin improvement was driven by price management, moderating energy costs and continued operational excellence with productivity and best practices being leveraged throughout the business which was partially offset by negative volume impact and general inflation please see the right hand side of page 13. this includes year-over-year revenue variance analysis for the consolidated nshd group we're pleased to disclose this information to our investors and stakeholders and hope everyone finds this information useful With respect to the variance analysis, NSHD experienced a large favorable impact of 7.8% from currency. Outside of currency, price is positive 2.7%, volume negative minus 1.7%, pass-through and surcharges were lower, minus 0.6%, due to moderating energy costs, and the other category, which includes M&A, divestment, deconsolidation, and non-recurring activity, such as equipment sales, was negative minus 1.6%. Please turn to page 20. Even though we are starting the year with solid profit and results, we remain cautious because of the relatively soft volumes. During one Q, we noted monthly sequential improvement in the electronics market. This is a positive sign, but the increase has not yet materialized in a meaningful manner. We expect the sequential improvement to continue. In addition, the yen has become more volatile, which causes additional headwinds. As a result of these factors, we will maintain the current full-year guidance for sales of 1.3 trillion yen and core OI of 177 billion, but we do expect upside if conditions and currencies remain stable. Page 29. Operating cash flows increase year-over-year by a modest 1.6%. Investing activities, which is nearly all capital expenditures, increased 85% from the previous year due to a significant ramp up in large growth capital spend driven primarily by the U.S. business. I anticipate that much like in recent years, our cash flow will improve as the year progresses. And with this, I'll turn it over to Kajiyama-san to provide some comments by segment. Thank you.

I am Kajiyama from Vesta Relations. Thank you very much for participating. I will now explain our performance by segment for the first quarter of the fiscal year ending March 2025. I will explain using the financial results supplementary material posted on our website today. Before I go over the performance by segment, as written on page 3, as written in the notes on page 3, the foreign exchange impact is calculated 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 U.S. dollar has an impact of approximately positive 2.4 billion yen on revenue and positive 350 million yen on on a cooperating income, while against the euro, impact of about 1.9 billion yen on revenue and approximately a positive 350 million yen on core operating income. I will now go over the performance by segment, but since the overview of our consolidated Q1 performance was already given by Mr. Draper's CFO, I will explain the Q1 situation by segment. First, Japan business on page 14. In the gas business, which accounts for approximately 60% of revenue, shipment-fed volume of air separation gas are core products. Even after exceeding the impact of a conversion of a subsidiary from an on-site production facility for a specific customer to a joint operation entity last year declined slightly. In terms of revenue, this conversion to a joint operation entity and deconsolidation of a residential AP gas subsidiary impacted and led to a significant decrease in revenue. In electronic material gas, we see signs of recovery in customers' capacity utilization rate, but volumes remain soft. In equipment and installation, since many projects generate revenue in accordance with the progress of projects, revenue increased year-on-year for both industrial gas and electronics. As for segment income, effective price management, moderating electricity cost, and continuous strong performance of equipment installation, these factors contributed significantly to increasing segment income year-on-year. As a result, revenue was 100.9 billion yen a year-on-year, decrease of 6.7 billion yen, or 6.2%. Segment income was 7.5 billion yen, a year-on-year increase of 300 billion yen, or 2.9%. There was minimal foreign exchange rate impact on revenue. Next, please refer to page 15, a Q1 performance of the U.S. business. In the U.S. business, shipment volume of core product air separation gas increased, but for other gases including electronics gas, acetylene, packaged gas, and helium, shipment was soft. In equipment and installation, sales of both industrial gas and electronics-related were soft. With regards to cost, we continued effective price management and productivity initiatives. As a result, revenue was 92.6 billion yen, increase of 10.6 billion yen or 12.9% year-on-year. Foreign exchange impact was positive 10.9 billion yen and excluding this impact, revenue decreased by 300 million yen or 0.4% year-on-year. Segment income was 14.8 billion yen, year-on-year increase of 3.7 billion yen or 32.3%. Forex impact on segment income was positive 1.5 billion yen, excluding this segment income increase by 2.2 billion yen or 16.4%. Next, performance of the European business on page 16. In the European business, a shipment volume of air separation gas increased year on year, and sales of equipment and installation, including medical device, were strong. Regarding cost, there was positive impact from a decline in electricity cost, and productivity initiatives continued. As a result, revenue in Europe was 85 billion yen, an increase of 11.9 billion yen or 16.3% year-on-year. Forex, in fact, was... positive 8.7 billion yen. Excluding this impact, revenue increased by 3.1 billion yen or 3.8%. Segment income was 16.6 billion yen, an increase of 3.5 billion yen or 26.6% year-on-year. Forex impact was positive 1.6 billion yen. Excluding this impact, segment income increased by 1.9 billion yen or 12.8%.

Next, Asia and Oceania business, on page 17. In Asia and Oceania, air separation gas shipment increased in volume year-on-year. Also, in LP gas, of which a large proportion sales is in the Australian region, sales volume increased. However, For gas and electronics business, which account for about 40% of the total revenue in this segment, so soft demand despite some recovery in utilization among customers in East Asia. On the other hand, there was a tailwind from the weak yen. As a result, revenue increased by 4 billion yen up 10.43% year-on-year to 42.4 billion yen. But FX impact was positive 4.1 billion yen, and excluding this, it decreased by 200 million yen, down 0.5%. Next, segment income was 4.3 billion yen. increase of 200 million yen up 4.8 percent year-on-year currency impact was positive 400 million yen excluding this income decreased by 200 million yen down 5.7 percent now thermos business segment Page 18. In thermos business, sales in Japan, mainly from portable vacuum insulated bottle was strong and overseas revenue from Korean and Asian production plant was favorable, but sales conditions at equity method affiliates were soft. In terms of income, despite the efforts to absorb higher costs by selling at new prices by launching new products with added new colors and features and so on, and the ongoing depreciation of the yen resulted in manufacturing cost increase, and that has affected the results. As a result, revenue was 8.2 billion yen, increase of 700 million yen, up 9.0% year-on-year. Currency impact was minor, and excluding this, it grew by 7.9%. Segment income was 1.2 billion yen, decrease of 200 million yen, down 13% year-on-year. Excluding FX impact, it declined by 2%. 16.3%. This concludes the segment results presentation. Lastly, I would touch on materials titled Appendix. From page 23 and onwards of your materials at hand, you'll find various information for your reference, including key performance indicators, condensed consolidated statements of cash flows, condensed consolidated statements of financial position, and sales. Among them, I will briefly talk about key performance indicators on page 27. First, overseas sales ratio increased by 2%. 67.9% by 4.3% from the same period last year in line with our global growth as of the end of the first quarter. In responding to strong investment demand, cash flow turned negative year-on-year as you see here. Due to the expansion of crude expenses and others, capex increased significantly year-on-year to 46.7 billion yen. Though it is partly due to currency translation impact with the weaker yen, our investment activities are steadily being implemented. Adjusted net DE ratio awards 0.73 times in the first quarter steadily improving from 0.74 times at the end of last fiscal year this brings us to the end of presentation of the first quarter results ending in march 2025 thank you

Mr. Hamada, Mr. Draper, Mr. Kajiyama, thank you very much for your presentation. We will now start the Q&A session. Please take note of the following points. As mentioned at the outset, if you wish to communicate in the Q&A session in English, please join us via Zoom English audio line. When Mr. Draper, an English speaker, answers your question, simultaneous interpretation into Japanese will be available on the Zoom Japanese channel. Since there is simultaneous interpretation, Please pay attention to your talking speed, speak at a moderate speed, and make your comments succinct. Thank you very much for your kind understanding in advance. Next, I will explain about how to pose a question. First, please raise your hand by clicking 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 company name. and your name. We do not need to fill in your question. After we designate you, please state your name and affiliation and then your question. We will respond to one question at a time. If you wish to cancel your question, please click the raise hand button again to put your hand down. Please note that your questions will be posted on our corporate website along with our presentation. This concludes my explanation. We will now respond to questions until the scheduled closing time. Morgan Stanley, MEFG Securities. Watanabe-san, please start your question. Morgan Stanley, Watanabe speaking. Thank you for your explanation. Sorry for the noise. The audio environment is not so good. Page 13, reason for increase in revenue. I think I was able to get detailed information from this page, but Japan, US, Europe, Asia, Oceania, and by region, I wanted to see a breakdown by region. If we're not able to do so, I want some more qualitative explanation, at least for Europe. Excluding forex impact, there's an increase in revenue. I want to know the reason for this increase in revenue in Europe, ex-forex impact.

Yes, Watanabe-san, thank you for your question. This is Alan. So overall, you know, we're continuing to try to disclose more information as time goes along and, you know, appreciate certainly everyone's support. I'll give some high-level comments as to, you know, pricing and volume by region, just to give you a sense for the flavor of what's happening. So on the price side, essentially all businesses are favorable on price. The only business that has slightly reduction in price is Asia Oceana. On the volume side, Europe and Thermos are positive on volume, and Japan, US, and Asia Oceania are slightly negative. So that gives you a little insight as to the breakdown, but we are not going to disclose a sales variance by region at this time, but at least it gives you a color commentary as to the major drivers. Thank you.

Thank you. My second question is, about EBIT margin. I want Mr. Hamada to respond to this question. May 22nd, at the explanation, you talked about the main trend of margin increase in Japan, U.S. flat, and Europe a slight increase, and Asia a strong increase. That was what you explained on May 22nd. I take a look at the Q1 results, and it seems as though it's reversed. The U.S. with the most improvement, Asia, conversely, slightly worsening. And if there's a change in what you see now compared with what you mentioned before, please explain. And if your perspective is still unchanged, at what timing do you expect a change in a trend? In the background as well. It's a very difficult topic, so to speak. The trend is such that As I mentioned in May, that was the trend mainly for last fiscal year. And actually, we think that for the time being, the trend will remain unchanged. Foreign exchange rates, inclusive, converted into Japanese yen, that's the number, and then the actual gas business numbers, taking into consideration capex and so forth, bearing in mind gas volume. If you take a look at all of these numbers, gas volume basically does not change as a result of foreign exchange rate. There is no direct impact of forex on gas volume, but this forex variance This time is quite different. The yen is becoming stronger, so we may see such a difference if we calculate various numbers. But if you take a look at depreciation, as Mr. Draper briefly mentioned, U.S. capital investment is very active and brisk in terms of amount and in terms of size as well. There are large CapEx projects. In that sense, there is impact of that capex going forward on depreciation. And with regards to Asia, we will continue investment going forward as well. At the moment, though, we are not seeing large capex projects. Rather, the gas business was quite stagnant, and we are seeing more movement, particularly for electronics. That is the trend we are seeing. It's true that actually I did not recognize that the situation now is quite different from what I mentioned in May. That is indeed true. However, there was last year's trend, and we don't think there's going to be so much of a difference between last year's trend and now. That is the comment I would like to make. The U.S. alone, I want some additional information about U.S. alone. There's active investment, CapEx investment in the U.S., and when new projects get up and running, do you expect a slight decrease in profit, or new projects will all of a sudden contribute to profit? So can we count the new projects into profits immediately? Could you please comment on that point? And large CapEx projects, Basically, on a monthly basis, what is the amount? We close a contract and a monthly amount is predetermined and that is how we start the project. The facility is completed and when we start operation, we start to incur depreciation costs, which means These are businesses that are able to abruptly generate profit. That is the nature of the many CapEx projects in the U.S., not necessarily all of them, but most of them. Does that respond to your question? Thank you very much.

Thank you for the questions. From Miss for Securities, for Yamada-san, please. Well, thank you very much for your explanation. And this is Yamada from Mistful Securities. And so I would like to ask several questions. Now, related to the CapEx and capital investment in the U.S., well, the capital investment has been very active. And on page 11, and, well, you have less of the steel and electronics and environmental-related issues. and chemical and energy-related projects are large in the size. And so I think other than Heiko, others are not so that active. And so is this a correct understanding? And also in the U.S., manufacturing sector, well the on-site in the manufacturer sector well we should go for that and also in on-site a business in asia i think what you need to really well um have a focus on them so well mainly on on-site if you could for a bit have the supplementary information as to your investment attitude The DE was starting with the Asia first, and on-site projects in Asia, in terms of the number of projects, there are quite a large number of them in the Philippines and Vietnam and Thailand. However, the size or the scale And well, gas, well, they were on-site. Well, the size or the scale is not that large. So the amount per project is not that large. However, in terms of the number of projects, we do have large number of them. And most of them, well, this might not be the appropriate description. And many of them are related to electronics, electronic component, the customers. And then we are providing such on-site gas supply. And so these are very active. However, as I said, well, each individual project is not so large in its world capital investment amount. As for the US, in a sense, well, there are a kind of the composite world investment and well, Heiko and air separation gas equipments. And so we can we divide them into two categories and air separation, well, the equipment investment and the customers. the chemical-related and electronics-related. And we do have different types of customers. And the customers are trying to really achieve carbon neutrality and then will improve or retrofit or modify the equipment or install new equipment. And in line with that, air separation gas equipment should be installed. And this type of project is quite large in its number. So the traditional or So we cannot really distinguish whether this is purely Heiko type of projects or not. And it is becoming more difficult to make a distinction. And our mega-scale Heiko project, well, the project in India we are engaged in, and that kind of size of Heiko project is not found in the US. Well, I see. So that is the reason why. Well, this is how you are really having the breakdown by application. And so this might well look a little tricky, but clearly this individual customer is, well, machinery, auto. It's not that we can clearly separate or distinguish them. And so we are really applying the perspective and to really allocate the capital. in our own way. So the recent capex by customers are related to environmental and carbon neutrality related projects. And so they are very much skewed to those projects. And so we do have a larger number of such projects. And as a result, the approximate half of the projects are related to carbon neutrality related projects. Well, thank you very much. Well, I really had a very good understanding. And page 8 and page 9 are the topics. And, well, you have really well talked about the composition scheme and also the board director's composition. And related to that, well, you have the change of the president in European business. And earlier, because you have so much of the mobility and, well, essentially, so there is not much of the change or the difference. But in the last three years in Europe, and vis-à-vis the entire world, while Europe has been taking the lead in improving all the operations, and vis-à-vis the new president heading the European business, what is the expectation? And if you could just tell us what your expectation is in addition to that. And as for the executive officers... And while performance-linked remediation is now included, and so... Do you see this sort of movement to have more active communication? Is this becoming visible? And so the compensation of executive officers first, and communication from long before, we have had a very frequent communication, and they are really coming to us, to me, so often. and for each individual business or operating company and direction and also through the dialogues with the management team. Well, they really were trying to really well come to me for consulting their overall sort of views based upon such communication conducted internally by themselves. However, visibly the target values and the monetary incentives are to be provided. Of course, there could be different views as to whether the amount is big or small, but not just for the profitability alone, but as the holdings. These are the sort of important factors we need to incorporate. the communication with the business and operating companies for this communication should be secured. And so that is the reason why we have come up with this new scheme. And so basically, the actions will remain the same from the past. And LaRue did it, our new president of the European business. And I cannot give you the details. And the predecessor, Eduardo, and the recommendation by himself and for a certain time period we have been while watching him and he is very competent and talented and also very deep understanding of gas businesses and this is true of Eduardo as well and also have a very strong leadership which is a very important as an element that we need to really focus on. I may have talked about this and in Europe Well, they have to really put together all these different countries, a clear sort of communication, a clear direction, and a clear sort of motivation. And also sometimes, well, this leader needs to really take the leadership to really exert that kind of skills. And so the skill level is almost equivalent to that of the predecessor. And he is based in Milan. So he has long worked there. And so as the basis, well, they went to Spain, Germany and France. And so, as I said earlier, we're within Europe and various sort of... The way the necessity to travel to different countries, well, there is no problem and concerns. And so the industry itself has well developed in its own way, which is different from Germany and France. And there are many gas companies. So there have been war on the consolidation or the various war on the selection. And so he has experienced all this war industry war background. And also in Europe, well, inclusive of the Russian war issues, well, it is going to be quite difficult. But it is true of Spain, but Italy and resilience in their life and the health related or gas businesses well um it has a very good sense a business acumen for these four businesses and so in a very well-prepared areas where Raul will be able to really develop different types of new businesses. And so I very much appreciate and evaluate him highly of this kind of skills. And so as The successor of Edward, well, he is fully competent and also have the further development potential. Well, thank you very much. I really wanted to ask another question, but well, I should not argue at the time. So this is the end of my questions. Thank you.

Thank you very much for questions. Next, BOFA Securities, Mr. Enomoto. I have three brief questions. First, Europe. There's increasing volume. In what kind of areas, in what kind of regions was there an increase? That's my first question. Then I would like to call upon Alan to respond.

So overall, the European business is seeing an uptick on their on-site volumes and also a little bit of uptick on their bulk volumes. So overall, that's a major driver of the increase in volume.

If possible, particular industry, or I want some more hints. This is Hamada. I may not know everything, but according to data that submitted to NSET Holdings, a steel industry on-site business, I think there was substantial growth there, relatively speaking, and chemicals, not so considerable growth, but steel, I think. In a sense, this was unexpected, unexpectedly high growth from the steel industry. And I talked about Italy. and health-related services relating to the resilience of people's lives. They are selling well, mainly in Italy and Spain. My second question is about Japan. Cylinder gas and specialty gas, a price hike, I think you announced. And what is the progress of this price hike announcement? Thank you. Price hike announcement we made and we are now working on price hike. Q1 aggregate number, we don't have sufficient numbers yet in that regard. For specialty gas, including specialty gas, cylinder gas overall, price hike is what we want to explain about. We want to continue this explanation. And by the end of the first half, we want to make sure that we have a clear number. That is what the Japan business is aiming at. And my final question is, Australia, LP gas acquisition, you announced this acquisition. the size, how much revenue or performance contribution is this entity like to make, and what was the M&A value? What was the size of the M&A deal? The M&A price is not yet formally approved. I cannot comment on the acquisition price, but in terms of size, I wonder if Alan has a good comment or Maybe corporate planning people have more information about this. This is Kubo from a group corporate planning. LP gas distribution business is what we have acquired this time. And depending upon CP fluctuation, performance fluctuates. Therefore, it's difficult to indicate a specific number. In the case of this fiscal year, impact on performance is, as Mr. Hamada mentioned, this deal has not yet closed yet. Competition authority-related clearance we're waiting for. We don't expect a significant impact on performance this year, a minimum impact of this deal this year. And thank you. And how much share? In terms of size of the deal, I want to know what would be the share. Detailed information about the size. We do not necessarily know everything, but we assume our estimated share is a bit less than 10% or so. That is the image we have of the size or share. And through M&A, will there be a significant change in share? we are able to supplement and have broader coverage of the Australian business, which means there might be a slight increase in our share after this acquisition. And how much impact does this particular deal have? We would like to refrain from disclosing that information. This concludes my response. Thank you.

Thank you for the question. Next, from Diver Securities, Ikeda-san, please go ahead. Well, this is from Diver Security. One question. In the profitability in Asia, Oceania business, and price has gone down. And so because of that, well, you have seen the decrease in profit. And then do you... different from Europe and the Americas, and the price management was not so easy, and you cannot really have the effective price management. Or going forward, do you think that you will be able to have the effective price management and also the productivity improvement initiative started from this fiscal year, and how would that already affect the profitability going forward? Thank you for the question. As for the price negotiations and the actual price revision, In Asia, Oceania, we are doing a security. And so actually, we are passing on to the prices. And there are many countries and regions, but some Well, our countries, well, we have some delay in implementations and so it has not been materialized, the actual effect of the price revision. But though there has been a delay in actual implementation, well, there have been some approval. And as for the electricity, well, the contract So it's gone up quite significantly, and so this will cost increase. Well, it cannot be effectively passed down to the price because, well, there was this, well, the electricity cost increased once, and then, well, all of a sudden, if we are to pass this on to the prices, this is not something we can do. And this, well, price for revision this time, it is not just limited to Asia, but, well, it is true for Japan, Europe, and the U.S. The reason why the prices in... to be increased. And for that, well, what are we supposed to do? And then by explaining this fully, well, the price increase is accepted. And so the electricity cost increase after that, It's not that we would be just, well, have this DE unattended, but in the next round of the price negotiation, we would like to make sure that this could be also passed on. And as for the cost reduction efficiency improvement in Asia and Oceania, particularly in Europe, the efficient operation and actions for that and they are well-promoting in very concrete terms. And each individual company is smaller in size, so it's not that we will have the big effect. And also, the production plant size is not that large, and also the production capacity is not that large. And so amount-wise, we do not see a big effect. But compared to the previous cogs, and because of the higher efficiency, the profit and have been generated for sure. And so going forward, the plants in Asia, we do have many smaller size plants, and there is room for further enhancement of the efficiency. So we would try to do whatever we can from the operational excellence perspective. Thank you. Additionally, another question. And the specialty gas in South Korea and Taiwan, because while the customers do have, while they're in stock and inventory, so that's the reason why you haven't been selling much? And the customers to which we deliver the specialty gases are quite limited. And so you may have some ideas. But we are seeing some movement in the inventory of the customers in both South Korea and Taiwan. And some customers and some gases, clearly, the shipment volume started to increase. The major semiconductor manufacturers are located in these countries, and clearly, there has been some water movement. But the semiconductor water plant utilization which has really well going down to the very bottom. But all of a sudden, if the utilization is going to be enhanced, well, they have to have some idle sort of the operation before they really will recover the utilization. In case of semiconductor-related businesses, well, gas would be started to be consumed. And hopefully, we're starting around the autumn this year. We hope that we will be able to really move our gases to be supplied to these customers. Well, thank you very much indeed.

Thank you for the questions. Next, CLSA Securities. Mr. Cho. This is Cho speaking from CLSA Securities. Thank you very much. volume and the amount trend, a trend by region that was explained. Q2 onwards, what is your prospect for Q2 onwards? I want some of the information with regards to prospect for Q2 onwards. That's my first question. Thank you very much. It's a difficult question, and we may have to respond in a difficult manner. Q2, we don't think there will be so much change in Q2. Semiconductor, gas-related business I just talked about, and we are not seeing abrupt startup in Q2. And for other factories as well, we are in the midst of a capital investment, which means we have to wait a while until operation starts. Large CapEx projects are currently ongoing. They will not relate so much to increasing volume yet. So then there are the existing factories. We have to take a customer's utilization rate, and will there be an increase in our gas in response to that? In the summer season, bearing in mind the summer season, we don't think there will be so much movement in Q2. We think a similar situation as Q1 will continue in Q2. That is what I think. And this was about gas volume. However, there may be a fluctuation in foreign exchange rates and energy conditions may change. Price is a separate story. If a situation changes, we have to be able to respond flexibly and appropriately. This concludes my response. There's one point I want to confirm about what you mentioned before. about the background behind not changing your four-year guidance. I think it's because of Forex. Besides energy costs and what other risk, what would be some other reasons why you have not changed your four-year guidance? I would like to call upon Alan Draper to respond.

Thank you, Imada-san. Thank you for your question. So in regard to full year guidance, as you mentioned, the first item is currency. The yen has strengthened significantly over the last two, three weeks. The BOJ is going to probably be making maybe some announcements today or tomorrow regarding interest rates. It could also fluctuate the yen. So that's obviously something out of our control and something we're not exactly sure what's going to come out of that. And second of all, we're seeing soft volumes. So what's carrying us right now is productivity and pricing. And with the soft volumes, we'd really like to see some improvement on the volume side before doing any type of adjustment. So we think there's upside on the currency. Obviously, currency stays where it is. But we're just not seeing any meaningful improvement on volumes today. And obviously, pricing is going to get more complicated if the volumes stay soft. So we're also obviously keeping a close eye on pricing. So it's just a complicated situation to navigate when you have soft volumes. And we're doing our best. And as of right now, we just want to maintain our current forecast. And maybe there's some upside due to currency. Thank you.

And that's it. Thank you.

Thank you for the question. And we would like to take the final question. Nomura Securities, Kono-san. Well, please go ahead. Kono from Nomura Securities. Well, thank you for this opportunity. European business world margin and the trend of the margin. And the quarterly trend in last year, well, from the first quarter to fourth quarter, there was a declining trend in margin. And fourth quarter last year to the first quarter this year, margin has improved or increased quite significantly. And the change of the trend, why is it? And so if you could just give us the reason for this change in the trend.

Overall, this is Alan. As I mentioned, the positive aspect in Europe is they're seeing some on-site volume improvement. On-site has the highest margins, as you're probably aware. So that's obviously a positive momentum and movement. And they're also still seeing some positive price and productivity. So the on-site volume is probably the biggest unexpected change that we've seen, and that's a high-margin business. So that's the primary driver. Thank you.

The product price has increased and energy cost has gone down. That is something I would assume. And then the product price is going up. Why is it?

I think it's more managing our price situation. So overall, moderating costs. And our team is doing an excellent job making sure that we negotiate and work with our commercial organization so that we're able to maintain price. So I think it's just a good job in the commercial team and sales organization to maintain price. I mean, that's part of the job. And what we're trying to do every day is maintain our price, even if costs are dropping. Thank you.

As for the product price, it's being maintained. And so rather than going up, it is where the product prices are maintained or sustained. Is this a correct understanding?

Yeah, there's two aspects of it. The first one is they're maintaining the pricing where moderating costs, and then they're doing the normal quarterly price increases. So there's a combination of the price activity or the volume, or I should say the margin activity. So maintaining price when moderating costs and then increasing price on their normal quarterly pricing actions, which are required under contract. Thank you.

Understood. Well, another question, if I may. In each of the regions and gas price management has been effective. And I think for that has resulted in a better availability and going forward, the energy cost If it is going to go up or going down in some of the regions, do you see some regions where you would see the changes in the energy cost? If you could give us the set of the prospect by region, please.

Thank you. This is Alan again. So overall, I don't think anyone knows what's going to happen with energy. I think what we've worked on over the last two years is to make sure that when energy costs go up, we're making sure that we're very active on the pricing side to make sure that we're at least covering our costs. So we can't tell you exactly what's going to happen in the future. We probably forecast relatively flat energy. But if energy costs increased, we're going to be active in the market to increase price. If energy costs decrease, we're going to actively try to maintain our price. So that's the best I can tell you because we're not great estimators at what the power costs are going to be in the future. And actually, I don't think anyone really is right now, especially related to the very difficult situation geographical. So that's the best I can give you right now for my answer. Thank you.

Thank you. Well, that's all the questions I have. Thank you.

Thank you for the questions. Because of time constraints, we may not have been able to respond to some questions. We would like to respond to them in one-on-one sessions. We will now conclude our fiscal year-ending March 2020-25 Q1 earnings call. The content of today's earnings call will be posted on the IR page of our corporate website tonight. Please allow us to inform you of our next Q2 earnings call, conference call. As indicated on slide 37 of today's presentation materials, the earnings call will be held on Thursday, October 31st, and we will begin at 5 o'clock p.m. Japan time. We used to hold the call at a later time, but in response to requests from shareholders and investors, we've decided to start earlier. Disclosure of financial results is scheduled at 3pm JST, the same as before. Thank you very much for taking time out of your busy schedules today to participate in our earnings call, and we appreciate your many