Nippon Sanso Holdings Corp

Thank you very much indeed for taking time despite your busy schedules. My name is Ishimoto from IR team. Thank you for joining this conference. Some housekeeping announcements. First The conference materials are the financial results, Tanshin, the earning score reference we have just released. Please have these materials ready. Today's main speakers are Hama, the President CEO, Draper, Senior Executive Officer, Group Finance and Accounting Office and CFO, and Kajiyama, General Manager of IR. In addition, Kubo, Executive Officer, Group Corporate Planning Office, Miki, Senior Executive Officer and CSO, the Group Sustainability Management Office, and Yoshida, General Manager of Accounting are also in attendance. Today's agenda begins with explanation from CEO Hamada, CFO Draper, and IR GM Kajiyama, covering Q2 results based on the materials. We have time for Q&A in the end. Zoom simultaneous interpretation function is available for English and Japanese. Please select your preferred language in the Zoom control panel. If you prefer communicating in English during Q&A, please set the Zoom audio language to English. Now, Hamada-san, over to you.

Hello, everyone.

We're having this earnings call a bit earlier than before. Thank you for joining. This is Hamada from Nippon Sons of Holdings. Thank you for taking the time to join our second quarter earnings call today. As usual, the global situation and economic environment, I would like to briefly touch upon these topics. There are geopolitical issues that remain unsolved. Therefore, there's still a lot of tension in the world. And amid such environment, the global economy, Europe and the United States, inflation is settling down. and interest rates had remained high, but also countries started to lower interest rates, including the United States. In the United States, there's the presidential election, and in various countries there are many elections, and a ruling party, an opposition party being replaced, and the main force being changed in various governments. There's a lot of change in the world. and that has a substantial impact on the global economy. And we think such trends may continue. And our group, we want to have an accurate understanding of such global trends, and we want to be able to continue business in a flexible and agile manner. Financial performance we will refer to later on, but in this business environment, We have approximately 20,000 employees and staff, and thanks to the sincere efforts of our employees and staff, as well as the support of our customers and other stakeholders, we are making steady progress towards the goal of the final year of our medium-term management plan and its vision, 2026. First, I wish to express my gratitude in this regard. Concerning the business trend, gas volume is on a declining trend, and There are ups and downs, but for example in the United States, cylinder and equipment business somewhat slowing down. Small users use a lot of these services and it's the fundamentals of the gas business. And at one time, semiconductor specialty gas was at its bottom, but... mainly for memory-related semiconductors, we are seeing a recovery trend. But I think you hear and see in the media a lot about AI-related news, logic. Semiconductor manufacturers seem to be struggling amidst the AI trend, and utilization rate in the factories seem to be lagging behind. And the We want to make our utmost effort to continue our business, continue a stable supply of gas. Based on that, we want to continue to grow and we want to enhance our corporate value. These, I think, are the important points for the NSHD group. NS Vision 2026, there are five focus fields like operational excellence and pricing. Each segment also has its own strategies, so bearing these in mind, we want to make our utmost effort, and four or five years have passed since we transformed into a holding company structure. We want to capitalize on our strengths to our maximum extent, and we want to be clear on the roles of the holding company as well as operating companies, and details of financial performance will be explained later on by Mr. Draper and Mr. Kajiyama. To summarize what I just mentioned, customers and social trend, we have to be able to respond flexibly and in an agile manner. Operational excellence, productivity improvement, price management, we want to continue such efforts so that we can maximize our profit. And the business expansion opportunity we want to be able to capture as much as possible. And mainly around sustainability, non-financial KPIs, we want to work on them as well so that we can respond to the fundamental needs of society. And through such efforts, we want to continue and commit to enhancing our corporate value. May 2025. we announced our medium-term management plan, NS Vision 2026. And as written on the slide, we have five focused fields. And we have explained our initiatives for the four years through March 2026. Today, I would like to talk about Last fiscal year's performance in terms of non-financial KPIs of our meeting term plan introduced our sustainability initiatives, particularly in the environment field. And 4 o'clock Japan time, there was a business acquisition announcement in Europe, and we would like to explain about this business acquisition in Europe. These are the topics I want to share with you today. fiscal year ending March 2026, which is the final year of NX Vision 2026, we set financial and non-financial KPIs. For non-financial KPIs, we set a target for each of the items of E-Environment, SSIT, and G-Governance, and the numbers are as written on the slide. First quarter results, when we announced that the we were not able to explain about non-financial KPIs because a lot of the matters were not approved. Today, we are ready to explain about this topic. And we have non-financial KPIs, one of the indicators that are linked to executive compensation. We have non-financial indicators linked to executive compensation so that it will become an incentive for executives. We will continue to thoroughly implement environmental management, occupational health, promoting women's participation in the workforce, and compliance education. For more information on our sustainability initiatives, please refer to our recently released integrated report. There's a lot of detailed explanation there. Next, I would like to explain about our group's material balance and environmental contribution. The input column on the left side of the slide shows the raw materials, energy, and water resources required for our business activities, while the output column on the right shows the amount of greenhouse gases, water, waste, et cetera, emitted as a result of business activities. The light green box shows the amount of greenhouse gas emissions reduced by our customers through the NSHD group products and services, including gas. I may be repeating, but the characteristics of our group's business is the fact that our group's energy consumption is mainly electricity as a result. Scope 2 accounts for approximately 80% of greenhouse gas emissions and the amount of water resource used and discharged is small compared to the scale of our business.

As a major power-consuming industry, NSHD aims to reduce GHG emissions by replacing air separation units with energy-efficient models and promoting efficiency in gas production by scaling to meet demand and optimizing the plant operation. We are also focusing on the future energy mix of power companies, aiming to minimize scope 2 emissions and pursuing business opportunities in carbon capture so-called negative emissions. Next, regarding environmental topics, we are also committed to biodiversity conservation. In August, we supported the idea of TNFD, joined the TNFD forum and registered as a TNFD adapter. As a result, We will begin disclosing information based on TNFD recommendations from FIE March 2026. We also introduce further biodiversity initiatives. Recently, from July, we joined the OIST Coral Project, supporting the project with thermos bottles On sustainability topics, we will hold an online sustainability IR conference on December 6 at 3 p.m. led by CSO Mikki. We will present our sustainability strategies and initiatives under NS Vision 2026, so please join us. Further details will be emailed soon by the IR department to investors and shareholders. Next, as I briefly mentioned earlier, At around 4pm Japan time today, we released an M&A announcement in Europe, which I will now introduce. This slide was not included in the deck uploaded to our website at 3pm Japan time due to European press release timing. The Let me introduce about the details, and you may not be able to see it, but the deck will be updated in a day or two. Our European subsidiary, Nippon Gas is Europe, has signed a contract to acquire 51% of the Italian engineering firm Polaris. Polaris designs and manufactures air separation units and purifiers, providing equipment and engineering services mainly in Europe. In industrial gases, they focus on small and medium-sized air separation unit and nitrogen generator. This acquisition gives us a majority stake in Polaris and enhances NGE's engineering capabilities. It strengthens our proposals to clients and allows us to pursue carbon-neutral business opportunities. We also aim to create synergies with our Japan-based Plant Engineering Center of TNSC. The group-wide synergy is going to be demonstrated. Polaris has a footprint not just in Europe, but Korea and other Asian countries as well as U.S. Next, I will explain our upcoming CAPEX plans and investment plans. Since the first quarter, i.e. March 2022 earnings release, we have shown CapEx plans by industry to give a comprehensive view of customer sectors. To achieve strong growth in the future, continuous CapEx is essential. As of September 30, 2024, Our backlog is around 160 billion yen. Comparing to Q1, it has decreased. This is due to the carbon neutrality-related energy industry targeted larger-scale project needed to be cancelled. This is one reason. And comparing to Q1, There was a slight depreciation of the Japanese yen, so there has been FX impact. So these are the key reasons. In terms of the number of projects, completed and newly acquired one was about the same. So the total number remains the same. Given the situation, approximately 45% of these projects are related to environmental and hydrogen society contributions. As noticed on the slide at the bottom, this scope covers projects above 500 million with the smaller projects excluded. Moving forward, we plan to present our growth potential by quarter disclosing CAPEX status Now, this is the end of my part. I will hand over to CFO Alan Draper to talk about the Q2 earnings overview.

Thank you very much, Hamada-san. I also appreciate everyone joining our Q2 earnings call. For the quarter July 1, 2024 through September 30, 2024, revenue increased 3.3%. Excluding the favorable impact of the weakened yen, revenue increased approximately 2%. Core operating income increased 10.4%, excluding currency impact COI was up 8.7%. The COI margin as a percent sales increased to 14.4%, up 90 basis points, and EBITDA as a percent sales also improved to 23.3%, up 70 basis points. As in the previous quarterly report, year-over-year growth and margin improvement were driven by price management, stabilizing costs, and sustained operational excellence. with productivity and best practices continuing to be leveraged across various businesses and countries. These gains were partially offset by the impact of lower volumes and cost inflation. Please see the right-hand side of the page. This includes our year-over-year revenue analysis for the consolidated group. With respect to the Q2 revenue variance analysis, NSHD experienced a favorable impact of 1.2% from currency. Outside of currency, prices positive 1.8%, Volume negative 1%, pass-through and surcharges were up 0.6% from increasing energy costs in the on-site business. An other category, which includes M&A, divestments, deconsolidation, and equipment activity, was favorable 0.8%. During Q2, NSHD recorded a non-recurring impairment charge of $10.7 billion related to the non-recoverable portion of a hydrogen construction project that was canceled because of a renewable diesel customer bankruptcy. We are disappointed with the situation, and the global HICO team is actively working to utilize and or redeploy these assets. In addition, internally we'll continue to analyze customer financial risk, strategic outlook, and do our best to minimize and avoid repeating this in the future. With respect to forecast, we have not modified our external sales and profit guidance because the changes that we see are mostly currency and are not overly material. Overall, if the macro conditions remain relatively consistent with the first half, sales will be within 1% of the current forecast of 1.3 trillion yen and will have an upside of approximately plus 2% to plus 3% on top of the 177 billion korowai income forecast. Our second half forecast assumed foreign currency rates of 145.31 USD to the yen and 157.72 euro to the Japanese yen. Therefore, depending on the performance of the yen, there may be some additional tailwinds due to the recent yen weakness. In addition, due to the $10.7 billion non-recurring charge previously mentioned, IFRS operating income is expected to decrease minus 3% to minus 4% range from the previous forecast, and profit before tax and net income will also be down similarly as the IFRS OI reduction of minus 3% to minus 4%. Operating cash flows improved significantly in second quarter, resulting in first-half operating cash flow improvement of 36% or approximately $31 billion versus prior year. This is a tremendous accomplishment and solid performance by the organization. Investing activities, which are nearly all capital expenditures, increased 57% from the previous year due to large capital projects. Therefore, from a free cash flow perspective, we were essentially unchanged despite the ramped-up capital spent. As Hamad Hassan mentioned, on September 25th, 2024, NSHB released our integrated report for the fiscal year ending March 2024. I encourage everyone to review this report as it offers valuable insight from our business leaders and outlines our strategies, goals, and the priorities we consider essential for our stakeholders. Additionally, As you meet individually with our IR team, CEO Hamada, or myself, we welcome your constructive feedback, both positive and negative, on the report and any suggestions you may have for improvement. Thank you very much for your attention. Now I will turn the call over to Kajiyama-san to provide some additional remarks. Thank you.

I am Kajiyama from Investor Relations. Thank you for this opportunity. I will now explain our performance by segment for the second quarter of the fiscal year ending March 2025. I will explain using the financial results supplementary material posted on our website today. Please refer to it if you have it with you. Before I go over the performance by segment, as written earlier, In the notes on page 3, 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 340 million yen on co-operating income, while against the euro, impact of about positive 1.9 billion yen on revenue and positive 340 a million yen on core operating income. I will now go over the performance by segment, but since the overview of our consolidated Q2 performance was already given by Mr. Draver per CFO, I will explain the Q2 situation by segment. First, Japan on page 16. In the gas business, which accounts for approximately 60% of revenue, shipment volume of air separation gas, our core product, declined, and impacted by the deconsolidation of a residential LP gas subsidiary, revenue decreased. In electronic material gas, shipment volume was flat year-on-year. On the other hand, 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. Effective price management and strong performance in equipment and installation contributed significantly to increase in segment income year-on-year. As a result, revenue was 93.9 billion yen a year-on-year increase decrease of 600 million yen or 0.6%. Segment income was 10.4 billion yen, a year-on-year increase of 400 million yen or 3.4%. There was minimal foreign exchange rate impact on revenue. Next, Q2 performance of the U.S. business on page 17. In the U.S. business, shipment volume of our core product, air separation gas, increased, but for other gases including electronics gas, acetylene, packaged gas such as dry ice, shipment was soft. In equipment and installation, sales of both industrial gas and electronics was soft. With regards to cost, we continued effective price management and productivity initiatives. As a result, revenue was 86.9 billion yen, decrease of 600 million yen, or 0.6% year-on-year. Forex impact was positive 800 million yen, and excluding this forex impact, revenue decreased by 1.3 billion yen, or 1.4%. Segment income was 13.7 billion yen, year-on-year increase of 1.5 billion yen or 12.4%. Forex impact on segment income was minimal, but excluding this impact, segment income increased by 11.4%. Next, performance of the European business. On page 18. In the European business, shipment volume of air separation gas declined slightly year on year, and sales of equipment and installation, including medical device, were strong. Regarding cost, continued efforts were made in price management and productivity improvement. As a result, revenue in Europe was 80.4 billion yen, a year-on-year increase of 6.2 billion yen or 8.4%. Forex impact was positive 1.7 billion yen and excluding this impact, revenue increased by 4.6 billion yen or 5.9%. Segment income was 15.2 billion yen, year-on-year increase of 2 billion yen or 15.1%. Forex impact was positive 300 million yen and excluding this impact, segment income increased by 1.8 billion yen or 12.5%. Next,

Next, Asia and Oceania on page 19. In Asia and Oceania, core products like air separation gases increase shipment volume year on year. In LP gas, which is largely sold in Australia, both unit price and volume increased. Additionally, Gas and equipment in electronics accounting for 40% of total sales increased as well. With weaker yen, sales were 44.1 billion yen, up 4.5 billion yen or 11.3% yen. Excluding FX impact, At 1.3 billion yen, the revenue increase is at 3.2 billion yen or 7.7%. Next, segment income was 4.5 billion yen, year-on-year positive 100 million yen or 1.6%. Excluding FX, excluding the 300 million FX impact, then the segment income remains flat year-on-year at 1.8%. Excuse me, down by 1.8%. Next, thermos business on page 20. In Japan, the sales, particularly portable marks, were steady. Sales from production bases in Asia were solid, but sales by equity method affiliates in other overseas regions were soft. In terms of profit, we've introduced new products with updated colors and functions aiming to minimize yen depreciation and rising costs. As a result, sales were 8.1 billion yen, an increase of 400 million yen or 5.6% year-on-year. Excluding FX impact, the increase is positive 5.2%. Segment income was ¥1.4 billion year-on-year basis, almost flat, or a 2.7% increase. However, segment income margin decreased by ¥100 million, or a 3.7% reduction due to the impact of yen depreciation. This concludes the segment explanations. Lastly, Let me touch on the materials in the appendix. Page 32 onwards. Key financial indicators, essential cash flow and the calculations and the reference for necessary financial indicators are listed on page 36. Key management indicators. Overseas revenue ratio at the end of Q2 was 68.2%. The 2.7% increase from previous year reflecting global growth, net DE ratio improved to 0.71 at the end of Q1 compared to 0.72 at the end of previous year. Finally, regarding the materials on the European Engineering Company acquisition, As explained by Mr. Hamada, we will update and upload them to our website with the additional details presented today. Thank you for your understanding. This concludes today's explanation of the Q2 March FIE 2025.

Thank you. 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 questions, 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, thank you very much, and make your comments succinct. Your kind understanding is appreciated 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. You 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. I have about two questions. First, President Hamada, you talked about the backlog decline, more than 10 billion yen, non-recurring losses that's incurred. I want to know about the background of this non-recurring loss. And I think you have recoverable portion remaining on your balance sheet. What is the gross amount? 10.5% discount rate. I think you're quite conservative, but... the remaining portion? Is there a risk of having the remaining portion posted as a loss as well? And in order to reduce the greenhouse gas emission on a cumulative basis, you engage in such projects, and do we not have to worry about similar risk in those greenhouse gas emission reduction projects? First, about the will decline, and the accounting treatment, they're not necessarily equal to each other. One hundred point something. You have those numbers, but the customer company filed for Chapter 11, and a lot is being still discussed. And What we can incur as impairment up to Q2 is this amount, 10 billion yen or so. And for a while, various negotiations will continue, which means there are still some uncertainties that remain. And the total investment amount in this project we have not announced, but... Against this total investment amount at this point in time, what we are able to estimate, we have posted as impairment. Please understand the situation that way. And should you be worried about similar cases? Carbon neutrality-related projects, specifically renewable energy or renewable diesel projects, related projects we do have multiple such projects but this particular project was the largest and we have to refrain from speaking in detail about the counterpart the customer but their product price was not as good as they expected and the Ultimately, they were not able to succeed in their business, and this company had to file for Chapter 11. Technology and our initiatives, NSHD's initiatives, it doesn't mean that all of our efforts will immediately turn into risk. That is not how we evaluate the situation. But as I mentioned, we are... engaged in various kinds of carbon neutrality projects, ranging from large projects to small projects. Particularly in the United States, we have lots of large projects. Europe and Japan, we have many small projects. And the technical advantage is not yet fully established. Therefore, there might be some similar partner companies. But We don't think there will be a significant financial impact on our company. As I always say, carbon neutrality-related sustainability and related investment projects. Concerning these projects, what projects will grow? What projects have growth potential? We have to closely monitor future growth potential as we continue such projects, we think. And... We looked around broadly about our overall situation, and we did not discover similar projects, and we did not discover projects in immediate danger. If Mr. Draper has anything to add about the numbers, any force-casted numbers?

Thank you, Hamada-san. No, I think you covered the comments well. You know, we're not able to reveal a lot right now because there's ongoing negotiations between basically all parties involved. So what we've disclosed is about all we can do right now. But I agree with Hamada-san that as we went through all of the other projects that we've reviewed and approved, we don't see any major risk or any major problems in our backlog. Thank you.

Okay, thanks very much for the elaboration. So I think you're also involved in the direct air capture as well, but I think the project body of the DAC is much bigger, so I think we do not need to pay big attention to that project as well. And may I understand that so far the risk is under control?

Yes, that's correct. We have parent guarantees and other aspects in place on that contract. Thank you.

Understood. Thanks very much for the elaborations.

I have another question. I have another question. I was trying to switch my channel. May I continue on? I have a second question. I was wondering if I can switch channels and can you hear me? Yes, we can hear you. My second question. Electronics related. Equipment installation, they seem to be strong, including backlog. Next year and beyond, do you expect the strong performance to continue and specialty gas What was the trend like in Q2? And for the second half of the fiscal year, what is your forecast? Thank you for the question. Large equipment and installation we have in Japan and Taiwan that impact our financial performance, but they are ongoing successfully. In Japan... There's some timing difference, but the overall plan is ongoing steadily. We think, therefore, there will be no impact towards year-end. And there's a large construction project in Taiwan as well. It was successfully completed. Small and medium equipment installation projects, we have those projects as well. But... the implementation projects that we are involved in, they are generally proceeding successfully. And I cannot mention the customer name, but there's a plan to construct a factory for a large customer, which is being delayed in Europe and China. And we have not formally received orders for these projects, which means that there is no direct impact on NSHD's financial performance. what will be the mainstream for AI, which companies, a company will end up using what kind of technology. We do not have a full understanding of these AI-related trends. We have to closely monitor such AI trends. And semiconductor material gas, SSG, semiconductor specialty gas, SSG is the business we call it, roughly speaking, In each region, we have started this business, and Q1, we didn't see so much of this trend, but in Q2, clearly, we are seeing better numbers. In particular, Southeast Asia, memory-related company, they use a lot of gas, and gas usage fortune by these companies is steadily growing, and when we prepared our guidance um we try to incorporate as much as possible and the business is proceeding quite successfully memory related business memory related gas is growing and the same performance as q2 or we may see further growth compared with the q2 and uh Some parts that could not grow in Q2 we think will be covered in the future. We have Southeast Asia customers, and for some gases, we have intergroup business. We have gas trading within the group as well for some gases. And gas manufactured in the United States, the volume thereof is growing. And this gas is not so much directly delivered to American customers but shipped globally, and we are seeing growth in global numbers, and we expect further growth. Understood. Well, thank you very much. I want to confirm one point about the equipment installation in Japan. The ruling party lost in the general election, and is that going to impact your equipment installation business? Unlike a U.S. presidential election, I don't think there will be major changes as a result of the general election in Japan. I don't think Japan is in a situation where they can make abrupt changes. I think this strong condition, therefore, will continue. And Japan as a country wants to grow electronics and semiconductor business, utilizing state-of-the-art technology. And I think all people concerned have a consensus that In this regard, therefore, we are not worried. This concludes my response. Thank you. Understood as well. Thank you very much.

Thank you for the question. Next, BOA Securities Enomoto-san, over to you. BOA Securities Enomoto is my name. I've got two questions. One, there is no revision of the guidance. Meanwhile, COA or I there may be a potential upside within the range of 1%. Taking into consideration from the first half to the second half, I think it's going to be the decrease in the profit. That should be the guidance. From your perspective, what are the risks in the second half? It seems like the situation will be deteriorated. So any... The risk factors, for example, the deceleration of the downturn of the economy or slowing down or the reduction of the gas sales. How we should assess and view the second half? That's my first question. Thank you. The figures and the details not to be explained by Alan Draper later on. no major risks we recognize at this point in time. But as I said earlier, overall, total gas shipment is not rising. Depending on the product, when we have the good pricing strategy or on site, looking at each customer, we see some increase in volume, but overall, Gas sales hasn't been increasing, so it's stagnant. Then, in what condition the destination situation will be further deteriorated? One thing I can think of is the crude oil or regional conflict will be expanded or export-import impacting shipping route disturbance. If those events occur, there will be a certain level of impact on our business. But at this point in time, it's not foreseeable, and we don't project that. It's difficult to say our situation is steady when we look at the economic environment. But at this point in time, we don't at least recognize that there is a major risk in the second half. And as for the full year guidance, Alan Draper will supplement.

Thank you, Hamada-san. Thank you, Anamoda-san, for the question. So overall, as I mentioned in my prepared remarks, if you look at our full year, our guidance right now that we have from our budget was $177 billion of core OI. If things remain relatively flat and consistent and stable as we've seen, and we don't expect any major change, we could be 2% to 3% higher than this on a full-year basis. So 2% to 3% on $177 billion would put us in the $181, $182 range. So we do expect a little bit of upside if things remain stable. One other comment I'll make regarding the outlook. We always look and meet with all the finance team and global leaders, and we ask them how each segment is going to perform from a market perspective. And right now what we're seeing today is chemicals we think is going to be slightly negative, energy slightly negative, other manufacturing neutral, health remains positive or health care, food and beverage slightly positive, memory and electronics positive, and then steel and auto essentially neutral. So if you kind of balance those out, we kind of are seeing more of the same. So first half, we expect to see similar results in the second half, but certainly we'd like to see some improvement in the economic environment that we're dealing in so we can start seeing some volume improvement. Thank you very much.

Thank you very much. Second question about CapEx. Initially, $166 billion or $170 billion was the level. But in the first half, it was a good level of progress, it seems like. So is my understanding correct? And full year capex, is there any possibility of having an upside from the current guidance level? Thank you. And the full year figure, I don't clearly remember. So I will pass that to Alan Draper to respond. But roughly speaking, as was explained, in terms of the numbers, the completed and newly acquired ones are the same, so the total number remains the same. And there are the large-sized projects being completed, or the cancelled projects have the significant size, so In the second half, there are a number of projects that are being completed. We've got a certain level, a certain number of projects expected to be completed. So slightly above the budget, maybe the level, 164, 166. So there may be a potential to have an upside from the given level, but I will ask Alan Draper to explain the details.

Thank you for the question. So overall, as you saw, our spend in the first half of the year was around $86 billion on capital. We're expecting to be pretty close to the budget, around $166 billion, but it's probably going to be a little bit differently than we expected. The underlying capital spend will be a little bit lower, but we have additional acquisition activity, as announced today with the European business. That was not in our actual budget. It was an unexpected acquisition because it was opportunistic. So we'll probably have lower capital spend, higher acquisitions, and end up probably pretty close to that number still at the end of the year, just in a different manner. Thank you.

Understood. Thank you very much.

Thank you for the question.

Next, CLSA Securities. Jo-san, please. Hello, this is Jo from CLSA Securities. Can you hear me? Yes, we can hear you. My question is about U.S., Europe, and Japan. Demand trend. July to September, I think demand was quite weak, particularly gas demand seemed to have been weak. Was there a special factor behind this big demand? For example, U.S., hurricane impact, or Europe... from around August, German PMI started to decline, and Japan automobile decrease in production. July to September, what was the demand trend, and do you expect demand to improve from October to December? That's my first question. Thank you for the question. Individual user environment, customer environment, individual industry environment. I don't have that data with me, but roughly speaking, there was no particular factor that impacted overall demand. European economy, particularly Germany, though, they seem to be facing a tough situation. As a result, gas supply volume as well as gas production volume may not have reached expectation. And this trend, will it recover in Europe? I am not sure whether we can see a recovery in Europe, but in other areas, for example, heavy industry, piping, they may not grow, but we are good in resilient market, health care, food, CO2 industries. We are strong with these industries, and we do invest. think there will be growth in these latter type of resilient industries, which will offset the possible growth in some other industries. U.S., I'm not sure of details, but on-site supply and so forth, I think they are doing quite well. But cylinder, gas, is pushing down overall performance as well as equipment like valves and welding equipment. These businesses are not growing, and what does this mean? We are not sure what this trend means, but generally, this is my personal opinion, but there is a U.S. presidential election, and maybe this seems to be the trend immediately before U.S. potential election. And once the outcome of the U.S. potential election becomes clear, U.S. might start to grow again. So I'm not worried about the U.S. so much either. Japan, we do not expect a significant growth from a structural perspective. But electronics-related gas, we think there is a growth potential. Large factories, they're starting operations And when various factories start operation, they will use various gases. Europe, U.S., Japan, we cannot expect significant growth, but the declining industries might be covered by other growing industries. Pricing activity. We are engaged in proactive pricing activity in all industries. Therefore, when it comes to bottom line profit, we should be able to generate a sufficient bottom line. And decline in volume is impacting revenue, but in terms of profitability, we think we have been able to meet our forecast. So please understand this trend this way. And this concludes my response. Alan Sun? This concludes our response. Thank you. Excuse me. Second question about the M&A, the acquisition in Europe, acquisition of European equipment manufacturer. What is the background behind acquiring this company now? I think it's because you don't have – well, I think NSHD has your own equipment, and – Why are you adding this business under such circumstances? Hydrogen-related equipment that you may not have focused on so much before, or, for example, the acquisition amount or valuation of the company. If you could please comment on at what price you bought the company and valuation to the extent possible. And NGE, a European company, had the longstanding business with this company that we recently acquired. And so we knew this company well from before. And this company's main business is the aspiration unit and the nitrogen generator, PSA equipment. And this is not directly related to gas industry, but chemicals, various chemical-related equipment companies. that's handled by this company as well. So this company is engaged in a wide range of engineering, particularly ASU, Aspiration Unit, as you mentioned. In Japan, TNSC manufactures medium to large-sized equipment separators, mainly speaking, but the newly acquired company has small to medium-sized plants, mainly speaking. Why did we acquire this company that manufactures separators? When there's load focusing in a particular area, we will not be able to shorten delivery time just in Japan. And this is not an issue that arose recently. From the past, when there's a peak, we had to delay delivery time and we were causing inconvenience to the customers and we had been thinking about how to resolve this issue. And We don't have so much large land and facilities to set up another place to manufacture ASUs. And economically, it's not reasonable either. And this company decided to accept a capital injection from our company. So we want... to utilize this company's engineering capability to an extent, and in that sense, I think it was beneficial to acquire this company. Gas generation equipment and ASU business, we think we can have a clear difference of labor between NSHD and the new acquired company, and the carbon neutrality related technical capabilities with engineering, that is also available in this company that we acquired. Gas, it equipment and ASU, compared with these kinds of capabilities that exist in TNSC, setting aside the size of equipment and plants manufactured, this is a company that has a broad range of capabilities. If possible, what was the acquisition price or valuation? If possible, if you can comment on these, it would be very helpful. I'm sorry, we cannot disclose that information. Thank you.

That's it. Thank you for the question. In the interest of time, the questions that we couldn't take and we would like to respond in an individual interview. So next I would like to introduce the IR event. As was briefly mentioned in the presentation, the sustainability IR conference will be held on the 6th of December. continued from last year, it is going to be in the third sustainability conference. We hope you will be able to join us with this. FH 2025, the second quarter telephone conference to be concluded. So the substance of the meeting will be uploaded on our website tonight. Thank you very much indeed for your kind participation and questions.