Nippon Sanso Holdings Corp

It's now time to begin the Nippon Sansō Holdings Corporation earnings call for fiscal year ending 2026 third quarter. Thank you very much for taking time out of your busy schedule to attend today. My name is Ishimoto from the IR department of the group finance and accounting office. I will be the moderator for this conference. Thank you very much for your cooperation. I'd like to give you some information about today's conference. First of all, the conference materials are the financial results, Tanshin, and an earnings call reference that we have just released. I'd like all participants to have them at hand. Next, we have three main presenters today. Hamada, President, CEO. Draper, Senior Executive Officer, Group Finance Accounting Office and CFO. In addition, Kubo, Executive Officer, Group Corporate Planning Office. Miki, Senior Executive Officer, CSA Group Sustainability Management Office. Yoshida, General Manager of Accounting, and Kajiyama, General Manager of IR, are also in attendance. As for the program today, first Hamada, President, CEO, and then Draper, CFO, will present the third quarter financial results along with the presentation materials. Then there will be time for Q&A. Please note that today's session will be bilingual in Japanese and English. Using the simultaneous interpretation function via Zoom, please select the language you would like to communicate with us in the Zoom control panel. If you would like to participate in the Q&A session in English, please set the Zoom audio language to English. Hamada-san will now be starting the presentation.

Good afternoon, ladies and gentlemen. I am Hamada from Nippon Sansa Holdings. Thank you very much for taking the time to join our third quarter earnings conference call today, despite your busy schedules. Without further ado, let me briefly introduce walk you through the key points summarized on this slide regarding our business performance. Following my overview, our CFO, Mr. Alan Draper, will provide you with a detailed explanation of our financial results. First, let me provide you an overview of our business operations. The overall sales trends, unfortunately, have not shown robust demand growth. and have remained either flat or on the weaker side. On the other hand, in the electronics sector, generative AI data centers or growing semiconductor demand for data centers, sales are on a recovery trend across regions, which we view as a positive development. However, if we look at the macro environment, there are U.S. military actions in Venezuela and concerns over U.S.-Europe tensions regarding Greenland. And after New Year, I don't know whether Japan was the cause, but there are uncertainties regarding Japan-China relationships. So these are all concerns. And China announces the tightening of the export restrictions to Japan. And Dichlorosane, which is a specialty gas, has been announced that there is an initiation of an anti-dumping investigation We are currently assessing the potential impact on some of our business and according to my experience, it should not account for a large volume. However, we would continue to closely monitor the trends as well as the actual numbers. And during this situation, I think each of the regions are doing very well, thoroughly implementing price management and operational excellence or improving efficiencies, including cost reduction. And as a result, profitability has recovered more than we had originally expected. Now, if I may give you the performance highlights. Well, later on, Mr. Alan Draper will provide you with a detailed explanation of the situation in each region and business segment. But I here would like to briefly share the performance highlights for the third quarter, specifically regarding U.S. and Asia and Oceania. First, the U.S. business, as I mentioned earlier. Volume-wise in gas, we cannot say that we have reached a full-scale recovery. However, we have continued execution of price management and thorough cost controls. These have been successful, and in the third quarter non-consolidated basis, core operating income margin has improved up to 15.1%. From the fourth quarter onward, we will continue We have the full-scale launch of new on-site projects. It has been launched and ongoing price management is conducted. Thorough cost controls as well as productivity improvement initiatives will be worked on. Therefore, we expect continuous improvement in profitability. As a matter of fact, with regards to the United States, We thought that we have been thinking that the industry itself will be more booming. However, the fact that the gas industry volume has not fully recovered, the manufacturing industry using gas has also not been recovering full-fledgedly. From our perspective, it is slower than our forecast. We were thinking that from the middle to the third quarter, the industry will be recovering and becoming more active in the U.S. However, there may be some geographical matters or political issues leading to this situation. But still, we believe that our company is doing very well. And when it comes to Asia and Oceania business, As I have briefly touched upon, electronics, rather than Oceania, it's Asia. The sales to the electronics sector is on the recovery track. The third quarter non-consolidated basis core operating income margin improved to 10.7%, and EBITDA margin reached 17.9%. According to the current medium-term management plan, segment EBITDA margin target is 17%, so we're able to exceed that. This means that it marks the first time that all segments have achieved this target on a quarterly basis. As I mentioned at the outset, electronics is for AI, data centers, impact is giving us a positive result. and I may have said this before, we were expecting an early recovery. However, finally, I think we are seeing that recovery is on track. Now, next I would like to talk about the status of investment of our company. I earlier talked about that we will be monitoring the world global situation and we'll be carefully listening to the customers' voices and we have proceeded with capital investments carefully. taking those into account. Now, we have actually stopped most of our capital expenditure because we have not known what will become of the tariff impact. However, the capex through the third quarter totaled to 78.4 billion yen compared to the previous year. It is still at a lower level. However, the industrial gas business. In order to expand industrial gas business, we need to make investments. Therefore, in the latter half of the year, we have seen more momentum recover. So we would like to catch more of those CapEx projects. However, still, there are investment risks. Seeing the uncertainty in the global situation, we I would like to grasp for sure the growth opportunity so that we will be able to grow our business capturing investment opportunities. And I would like to talk about the backlog situation of CapEx later. Now, topics. First of all, we announced the construction of a – well, in our Tsukuba Laboratory. laboratory at the Taiyo Nissan, that we will be making a R&D center for advanced materials for the electronics industry called tentatively called Advanced Electronics Materials Development Building, and we expect it to be completed in March 2027. At this new facility, we aim to develop new products that address not only gas but liquid materials, new products that address the evolution of the electronics industry, And we would like to also promote development through collaboration both within our group and with external partners. And as we have been mentioning from the past, the current midterm management plan will end this March. And a new midterm management plan right now. is being reviewed proactively. NS Vision 2026, which is a current medium-term management plan, will end, as I mentioned earlier, this March. So as for the new MTP starting from April this year, on March 30th next month, we would like to conduct a briefing to explain about the new MTP as our team has announced, and we will have a venue near the Tokyo Station for the briefing. This will be held both face-to-face as well as online, a hybrid format. So we welcome your participation. And additionally, our fourth quarter earnings announcement. and conference call are scheduled for May 11th. And the earnings briefing, where we will explain our business plans for the next fiscal year and beyond, based on this fiscal year's full year results, is scheduled for May 22nd. Now, next, I would like to explain our future capital investment execution plan. As in previous presentations, this chart shows the composition of our capital investment plan by customer industry. Our backlog... Backlog as of December 31, 2025 stood at approximately 150 billion yen, no different from the second quarter. However, there are some replacements. We have added new projects, six of them, and completed. There were four completed projects. There are also foreign exchange impacts as well. However, as we mentioned in the first half, we have not been making CapEx, Nomad CapEx at all. Therefore, in the second half, we would like to make investments for these projects. Our industrial gases itself contribute to a sustainable society, and we are communicating this proactively recently. And we don't know whether this is a good categorization. However, if I may, new CAPEX contributing to a sustainable society, According to our calculation, it is approximately 38% of our total backlog, as shown on the lower part of this slide. For projects below 500 million yen are not included here. So now I would like to hand over to the CEO, Alan, to walk you through the financial results. Alan, please. Holdings.

Please turn to slide eight as I start my presentation on performance. Go to slide nine now, please. For the quarter, October 1, 2025 through December 31, 2025, revenue grew 5.7% or approximately 2% excluding currency impact compared to the same time last year. Core operating income increased by 12.3% or 7.6% on a constant currency basis. CUI margin improved to 15%, up 90 basis points, and EBITDA margin rose 150 basis points to 24.5%. As mentioned by Hamad Hassan earlier, this quarter marks the first time that all NSHD business segments exceeded EBITDA margin of 17%, and as a group achieved more than 24%, meeting our medium-term plan goal. Year-over-year growth and margin improvements were primarily driven by price management, operational excellence, productivity, and best practice initiatives applied across businesses and geographies, and also contributions from acquisitions. On the right-hand side of the page, we summarize the revenue bridge for Q3. Foreign exchange contributed 3.7%, primarily due to yen weakness against major currencies. Price added 1.8%, while pass-through and surcharges decreased about 1%, reflecting lower on-site energy costs. Volumes declined minus 1.8%, and then the other category reflects positive contributions from acquisitions in Europe and Oceania, as well as strong equipment sales in Japan electronics. There were no significant non-recurring items this quarter, resulting in operating income increasing 12.2% year over year. Turning to guidance, as shown on page 23, today we're revising our full-year revenue and profit outlook. Although gas demand remains soft due to ongoing macroeconomic and geopolitical uncertainty, favorable currency tailwind, and continued contributions from M&A, and sustained price and productivity action supported an improved outlook. We now expect to exceed our original revenue forecast by 3.1%, resulting in 1.33 trillion yen, and we expect COI of 196 billion yen, a 2.6% increase compared to our original forecast of 191 billion. The currency rates assumed for the revised forecasts are 150 yen per one USD and 170 yen per one euro. In addition, we also expect to achieve our midterm plan EBITDA margin goal of 24 percent. This one we determined was one of the hardest ones to achieve, and it looks like we're going to achieve favorably. Please turn to page 31. Operating cash flow rose 16.5 percent year over year. Investing cash outflows rose 22 percent, primarily due to the OCEAN acquisition. Free cash was slightly negative for the nine-month period due to acquisition-related payments. Now, we'll review results by segment. In Japan, price management efforts continued in specialty gases and CO2. However, soft volumes more than offset the revenue growth. Industrial gas-related equipment and installation projects performed well, while electronics-related projects decreased versus prior year. Electricity costs remained stable with a slightly downward trend. The revenue for Q3 in Japan was 100.6 billion, down 0.2 billion yen, or minus 0.2 percent year over year. Core operating income of the segment was 12.6 billion yen, up 0.4 billion yen, or 3.4%. CUI margin improved by 40 bps, which is basis points, to 12.6%, and EBITDA margin improved by 70 basis points to 17.4%. Page 11. Revenue growth in the U.S. was supported by favorable foreign exchange, strong price initiatives, and solid equipment installation sales. Inflation headwinds remain, but due to price actions and productivity measures, COI increased year-over-year. Q3 revenue was 92.6 billion yen, up 2.1 billion yen, or 2.3%, year-over-year, excluding currency impact. It was up 1.3%. Core operating income was 13.9 billion yen, up 0.4 billion yen, or plus 2.6% year-over-year, and excluding currency impact, COI was up 2.1%. COI margin and EBITDA margins were 15.1% and 28% respectively, representing an increase of 10 basis points on COI and 80 basis points on EBITDA. We continue to drive price actions, productivity initiatives, and cost reduction, and also savings efforts to improve profits of this business. Slide 12. In Europe, onsite volume softness persisted. However, positive price performance, stable to moderate energy costs, and contributions from the Italian acquisition supported solid year-over-year growth and margin expansion. The revenue for Q3 in Europe was 90.2 billion yen, up 6.9 billion yen, or 8.3% year-over-year. However, excluding currency, revenues were slightly negative at minus 2.3%. Core operating income was up 18.5 billion yen, or up 3.1 billion, or 20.4% increase year on year, while the COI improvement was a more modest 8.6% increase, excluding currency. The core operating income margin improved by 210 basis points to 20.6%, and EBITDA margin rose 280 basis points to 33.5%. Next page, please. Strong revenue and profit growth were driven in the Asian Oceania segment, primarily by the Oceania acquisition and continued strength in specialty gases and electronics-related installation projects. Q3 revenue is 55.5 billion yen, up 10.3 billion, or 22.7 percent year-over-year, or an 18.1 percent improvement with constant currency. Core operating income was 5.9 billion yen, plus 1.9 billion yen, or 47.2% year-over-year. Excluding currency, CUI grew at 40.5%. CUI margin increased 180 basis points to 10.7%, and EBITDA margin was up 240 basis points to 17.9%. Next page, please. Thermos. Thermos experienced weaker results due to sales decline in its core markets of Japan and Korea. In addition, increase in procurement costs more than offset pricing actions and cost optimization efforts. Revenue for Q3 was 7.6 billion yen, down 0.4 billion yen, or minus 5.1 percent year-over-year. The decrease was 5.2 percent X currency. For Core OI, it was 1.3 billion yen, down 0.3 billion yen, or 17.6 percent versus prior year. Ex-currency COI was down 19.2 percent. The segment COI margin declined by 270 basis points to 17.6 percent, and EBITDA margin declined by 240 basis points to 23.2 percent. For your reference, please refer to pages 15 through 21 for the first nine-month detail. I will not cover that information today. As previously explained, we have revised our full-year forecast to show updated financial expectations for this fiscal year. And this concludes my comments and full-year outlook. Thank you very much for your attention.

Mr. Hamada and Mr. Draper, thank you for your explanation. We would now like to take questions, points to note. As I mentioned at the outset, Those who would like to communicate in English, please participate using the English audio line in Zoom. Please note that the Japanese channel will be broadcasting Japanese translation. So those who will be asking questions, we would like to be mindful in your talking speed and tempo because there will be simultaneous interpretation. Next, I would like to explain the procedure for today's Q&A session. First, please raise your hand by pressing the Raise Hand button on the control panel displayed at the bottom of the Zoom screen when you ask questions. 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. Once you have been nominated by us, please tell us what your question is. When you ask a question, please tell us your company name and your name first, and then ask your question in one question, one answer format. If you wish to cancel your question, please press the raise hand button again and put your hand down. Please note that your questions will be posted on our corporate website along with your presentation and also temporarily with auto That is all the information I have for you. So now I'd like to take your questions until the scheduled ending time. CLSA Securities. Mr. Cho, please. I'm Cho, CLSA Securities. Thank you. I have a question regarding the European situation. The European margin is improving a lot in the third quarter. And was it the acquisition impact? How much was the acquisition impact? And towards the fourth quarter, the European margin, how do you, what is your outlook on the margin in Europe for the fourth quarter? Those are the two questions. For this, I would like to have Mr. Draper answer the questions based on specific numbers.

Thank you for your question. This is Alan Draper. So overall, we don't disclose the performance, unfortunately, on a region or acquisition basis. You can see that in our walk, you get a fairly good sense of we have a sizable portion that's due to core gas as well as clean heat and Polaris. But overall, it's not a huge acquisition for Europe. The biggest driver was strong performance was due to lower power pass-through. And then at the same time, they had significant amount of pricing and productivity efforts that went through the organization. So there was some benefit related to the acquisition, but it's not a huge impact when you look at Europe's EBITDA margins. Thank you very much.

So the fourth quarter, do you think that the margin will be similar in the fourth quarter as the third quarter?

Yes, this is Alan again. So overall, margins was a good quarter in the third quarter. I think things will be probably pretty similar to what they were in the third quarter to the fourth quarter. There's always a little bit of movement. Power always is an unknown if power costs go up. We do more pass-through, which is a little bit of a deterioration on your margins. If power costs go down, there might be a little bit of a benefit. But probably around that range is probably a pretty good estimate. We've been in that 31, 32, now 33 range the last year, so I expect it to continue in that same range. Thank you very much.

Thank you very much. And as for the second point, as for the Asian trend, segment margin, Q&Q and Y&Y has been improving. And the background of the improvement is, of course, core gas acquisition impact. I think that is one thing. But excluding that, the largest... It's a semiconductor gas sales improvement. Is my understanding correct? Asia's third quarter margin is improving, so I would like to know the background of that, and also the fourth quarter outlook as well. Again, I would like to have Mr. Alan Draper answer this as well.

Overall, we've been really working hard at the Asia-Oceania segment. I think we hit kind of a low late last year, beginning of this year. We had a lot of pre-acquisition and acquisition costs that came through that kind of brought results down. We had some helium headwinds that, while they still are a headwind, they're a little bit more, I'll say, modern, normalizing a bit. So the underlying business is driven by East Asia Electronics. That business is performing well. We're seeing good improvement, good electronics demand on both gases as well as on the equipment side. And I expect to continue to see progress as we get into the fourth quarter into the next year. So I do expect to continue to see this level and even a little bit higher as we move into next year.

Thank you.

Understood. That is all from myself. Thank you very much.

Mr. Chu, thank you very much. SMBC and Eco Security, Shinta Nisam, please. Thank you very much for your presentation. And now I'd like to talk about the factor for the revision of the corporate performance. I'd like to check the detail. As a positive factor, if depreciation or price management or productivity gain, and a new consolidation factor. On the other hand, the volume of the reason of the negative factor, as much as possible, how much was the impact, the order, or the breakdown? Could you elaborate on that? Thank you very much. As for the forex impact, Alan Drenperson's presentation. So we would like to ask Alan to respond to that question.

Yeah, so thank you. This is Alan Draper. So, you know, obviously we're continuing to see the foreign currency benefit. So that's by far our largest benefit that we have. Underlying volumes are a bit soft. So if you look at it, it's really driven by the foreign currency being offset by a little volume weakness. So we're thinking that in the fourth quarter volumes are going to continue to stay at this. relatively soft pace maybe minus one percent in that range as a combined nshd group and and the currency is really offsetting that and obviously we're still driving price and productivity efforts so but the major driver is definitely the the pricing aspect or the sorry the um the currency aspect thank you very much

Thank you very much. So, Forex has been the major driver. The next contributor is price and productivity. They are on the equal footing, the same level.

Yeah, this is Alan. If you take a look at the bridge walks that we have and you look at the third quarter, it kind of gives you a sense for what we're seeing when you look at revenue growth and obviously the profit side of things. So I don't think we're going to have any major dramatic change from what the third quarter looks like to the fourth quarter. Fourth quarter sometimes is a little bit stronger with equipment sales, but I don't anticipate any major shift from that 3Q vision when we look at fourth quarter. So that gives you a little insight as to the major drivers. Thank you.

Understood. Thank you very much. That's all from me. Thank you.

Thank you very much. Mr. Enomoto, please. This is Enomoto POV Securities. I have three questions. Number one, electronics improvement. I think the CEO referred to the improvement in exactly what is happening. Can you elaborate? For example, the demand or order in Japan is increasing for equipment, or specialty gas recovery is gaining momentum, or what kind of feel do you have, a live feel? That's my first question. Thank you very much. As for electronics. It's not that this one particular gas has improved greatly. Semiconductor production itself is growing a lot. Therefore, our semiconductor manufacturing factory, we do have factories in various countries and regions. And so we are seeing great volume in production. and in all regions and also this is not reflecting the numbers it's very detailed but as I have mentioned before the capital the installment of construction in Japan we had two large projects and other than we also have other projects as well therefore the electronics-related business has increased a lot, and therefore a similar thing is happening in the United States as well. There is one manufacturer ordering us a part of their equipment installment, and that kind of a project is increasing. Therefore, gas used as material... And equipment to use gas, both are increasing. That is a situation of electronics. That's all for myself. Understood. So recently, it's not that you're seeing a sudden increase lately. It's not that you're seeing an increase in backlog all of a sudden. Well, as a matter of fact, in Japan, there are new construction projects, but that is not reflected in the numbers yet. So the improvement in numbers that you see is not due to some sudden project. It's that overall volume is increasing. That's all. My second question is Europe, about European market. From this year, the border tax carbon or CBAM regulation has been introduced. introduced, do you see any kind of impact from the CBAM, for example, steel industry or chemical industry, the industry that would impact the CBAM? I think you do make a lot of statements of industrial gas to those industries. So if you see some sort of situation, then. Well, thank you for your question. I do not have a good understanding in this. So maybe Alan Draper, can you, Alan, if you do have any comment that you can make.

So we had our board meeting today, and our president of the European business was here, and he mentioned that we don't see any impact of this yet. Obviously, we don't know what's going to happen in the future, but as of right now, we don't see any significant impact related to this. So we'll keep monitoring closely, and if anything changes, obviously we'll let you know. Thank you very much.

Thank you very much. And lastly, I'm sorry, I have a question regarding a special project. The numerical of India refining construction, whether the construction has completed and from next year. I think it was a HICO project. So is it going to contribute to your business, HICO business? India's HICO project has completed, yes, its construction. And it has been delayed just a little bit than planned. However, in the overall construction, we have made adjustments in the overall scheduling. Therefore, on a timely basis, I think we have completed the construction. And the actual operation will start shortly. Understood. Thank you very much.

Mr. Enomoto, thank you very much. And next, Misoho Securities, Mr. Yamada, please.

Elaborations. May I ask you several questions in English? The first one is basically the electronics-related materials. As Hamada-san said that the China seems to be probing the dichro silanes, DCS, and I think Anyway, Japanese corporations are basically dominant in this field, hence the Chinese probe seems to be a kind of a side, has some side agenda. So how are you planning to cope with that? And then is there any strong or major implication or impact as a result of the geographical tension mounting between China and Japan in the administrative businesses?

Please allow me to respond in Japanese.

Currently, it is under investigation. So what would be the impact or the magnitude of the impact? Well, as far as we can investigate is that what is the amount and the volume of this material to be shipped and to whom we are shipping to? That is what we study. the grounds for dumping investigation submitted by the other party is currently under scrutinized. But whether it will be a huge impact or a little impact, at this point in time it is difficult to make such a judgment. So as far as we know, Well, first of all, we have to study and examine and decide whether we will respond to this or not. First, we have to have a full study and there is a deadline. So toward the deadline, we will solidify the exam in the situation.

I do appreciate the wise comment regarding the accepting the probe or not. And in relation to that, according to the backlog, The electricity backlog seems to be increasing. The overall amount seems to remain similar at around 150 billion Japanese yen in outstanding. Is this a reflection of the increasing demand in America as well as in other nations, or is this just basically reflecting the project progresses in Japan?

Thank you very much for your question. Well, first of all, what I can tell you is that in Japan, the major construction work or investment work for semiconductor was already completed. So this is already completed, reducing the backlog. On the other hand, in the electronics area, There is some facility-related construction work available. However, details are yet to come. So on our end, we have a high expectation. So I sincerely hope that this will be added to the number. And talking about the overall capital expenditure, America and Europe in different parts of the world, they are on an equal basis. Well, the major item was completed in Japan and therefore the ratio of the backlog of Japan has been reduced. However, as for the overall value, it has been flattish. However, there are six order intake and four completed. Well, I cannot show you the breakdown in detail, but there is an increase in order intake, including the bigger one, the smaller one. This is the number we are seeing right now.

Last one regarding the company's estimated revisions. According to the information shown on page 23, the company's operating profit operating income estimate has revised up by around 3.3 billion Japanese yen, whereas the net income after tax for parent shareholder increased much more. What's the gap between the operating profit or operating income estimate increase and net income after tax increase. Thank you.

On this matter, we would like to invite Alan Draper-san to respond.

Thank you for the question. This is Alan. One of the bigger items we have is in Germany, they changed the tax rule. They reduced the tax rate, and that has a pretty significant impact on the quarter and also year-to-date. So it was significant enough. You'll notice that our taxes did not go up that significantly, and our effective tax rate went down quite a bit, and that's mostly due to the German situation. We always have a little puts and takes through the tax line, but that's one of the bigger items is related to the new German tax rules, and it's going to continue to decline I think through the 2030s, I believe, with the taxes, what the government said, and they're doing that to stimulate the economy and more growth and investment. Thank you for the question.

Thanks very much for the elaboration. So may we expect the European income will be less subject to less taxation for next maybe two, three years time horizon because of the German tax reforms.

Yeah, I think overall when we did the entry, it's really a deferred tax item that comes through, so it's what your expectations are. So I think it considered what the future rates were as long as they were locked in. If the government and the legislation has finalized it, then it would be coming to play, and I think that was the case. So I can't give you a perfect answer, but I have a feeling most of it's been taken into consideration in this quarter as a result of the long-term view.

Lovely. Thanks very much. Thank you.

Thank you very much, Mr. Yamada. Morgan Stanley, MEFJ. Mr. Watanabe, please. I'm Watanabe from Morgan Stanley. My first question is regarding segment in Japan, if you can supplement a little bit. In comparison with the second quarter, this segment alone margin is decreasing. Is it because of the completion of installation of some of the projects, or are there any other factors? And as for the installation, you said that orders are increasing. But from the fourth quarter, will they be contributing to the revenues in the fourth quarter? That's my first question. As for the margin of Japan for a construction project, The margin is relatively good in Japan. But with regards to margin in Japan, it's not only that. The power cost is continuously been contained in a very good level, a slight decrease as well. So presuming from that, there is not much of a big change in the margin. The largest factor perhaps is that CO2 gas volume and the balance of supply and demand, I would not say is deteriorating, but that could be causing a little bit of a difference in margin. That is my interpretation. And in the fourth quarter, whether the construction projects, well, there will be some posting of revenue, however, There will be no major project completing in the fourth quarter, according to my memory. Therefore, it will be from next year onwards that large numbers will be reflected for the construction project. Thank you very much. My second question is about the United States of the Americas. In the second quarter briefing, you said that the U.S. margin as of September is slightly below 15 percent. It has improved to close to 15% instead we can highly expect in December, and I think you were right. Now, the 15.1% in December, the background, what has been improved from September? Is it the new plant operation, or is it that profitability of existing business? And are there any additional factors that we can factor in in the numbers of January to March? Thank you very much. As for America, the United States, as I touched upon earlier, the first half was not very good. And we had expectations that we will grow in the second half. And in the third quarter, in the first half of the third quarter was not very good. As I mentioned, we have decided to be more active and aggressive in pricing and our operational excellence. the improvement of productivity or the improvement in transportation costs, we have thoroughly worked on these projects. And these have been planned. And when we compared the first half and what we had planned, there were great gaps in the numbers. So we have aggressively worked to correct that. And those efforts have been reflected in the third quarter results. So in that sense, the fourth quarter, we will see a further improvement. Is that correct? Yes. As for pricing, we will continue. And we also are starting new pricing initiatives as well. If there's anything to add from Alan?

Just one thing to add. You know, we are expecting an uptick in the margins. However, you've probably seen in the news there was a major winter storm that went through the United States. I think it affected about three-quarters of the country. That obviously caused some headwinds, so that will be a little bit of a negative. So we were expecting a pretty good improvement in the fourth quarter. We're still expecting an improvement in that quarter, but the winter storm definitely caused some headwinds that we weren't expecting. I'm sure you saw it in the news, but that's going to be a little bit of a headwind, but we still should be seeing some positive momentum on margins. Thank you.

So your plan does already factor in the winter storm, is that correct?

Our guidance that we provided of 196 billion of core UI does include the storm. So we did include that since it occurred about 10 days ago. However, when you talk specifically about the U.S., the U.S. probably shifted a little bit from what we thought it was going to do at the beginning of the month. But our forecast does include the winter storm. Thank you. Thank you very much.

Mr. Watanabe, thank you very much. Now, there was some trouble for five minutes. English channel was not effectively working. So, sorry for some technical trouble for English channel. Now let me continue. Omura-san from the UBS security, please. I am Omura from the UBS security. My first question, well, now I'd like to ask you about the Europe which was not so asked so far. The 20% or more, that is the margin for the third quarter which is quite a high level. Only looking at the first half it was quite high but now the margin has further increased in the third quarter. What is the priority of running the European business? So I would like to check that pricing or the cost reduction or the top line increase. What would be the major factor for the margin? So to how much extent would you like to see in a margin increase to satisfy you as a company? Later, we'd like to ask Alan-san to supplement my comment where, rather than deprivatization, the maintenance of the pricing, or the raising the price, or as a manufacturer, a cost reduction, or the improving the operational efficiency. They are all facilitated in parallel simultaneously. At the end of the day, looking at the results, well, there may be difference in the plant utilization and therefore even if you take action, the end results may vary. So there might be a margin of error. So should we first raise the price or should we reduce the cost? So it does not mean we are running the operation by having any prioritization. No, that is not the case. we are able to continue the decent margin level as that is because of the fact that we have continuously working on these efforts simultaneously. If you have additional comments, Anantham, please.

Thank you, Manasan, and thank you for your question. You know, overall, when you think about the margin side, you know, one of the things we've been trying to have a mindset change across the organization is that we can have continuous improvement across the organization. So we're always going to be trying to push the organization for margin improvement in a sustained way. So that's our goal. And to get sustained growth, we'd love to see volume growth if we can. If we can't get volume growth, we're also going to be pushing on price and productivity. But our goal, as I've mentioned to many of the analysts and investors, is try to get at least 50 basis points of EBITDA margin improvement a year and make sure that we're growing our profit faster than we're growing sales. So we're going to continue. It doesn't matter what margin level the European business gets to. We're going to continue to try to drive them further and make sure they're present and the business continues to drive their organization further as well. Thank you very much.

Thank you very much. My second question, a thermos business. What is your take on the thermos business right now compared to other businesses, be it revenue growth or the margin improvement? There might be a difference in direction and the magnitude compared to other businesses and what is your take on the synergy with other businesses in the new mid-term business plan? What is your positioning of the service? Do you have any take on that? Thank you very much. Well, Sirmus. Well, we have explained the background or the history of Sirmus. Setting that aside, for 30 years, as a B2C business, they have been operated independently. Therefore, they have made their capital expenditure and are working on the productivity gain, marketing and pricing. So they are different from the industry gas. So the perspective or the angle is different. So thermos in different parts of the world For location, including small wine in Japan, we have five facility for production. So they have their own business plan. And based on that, they will go ahead with their business as a holding. We would like to support the business. So we are not demanding the synergy with the industrial gas. We are not pushing that. In the area where we are running the industrial gas, we believe that the market is very important. So we have to listen to the voice of our actual users. From that perspective, even in the area of industrial gas, I think that Thermos has a good marketing methodology which will be effective in the industry gas. We are talking about the Thermos business. The business is promoted together with a partner. in different country, Asia, Japan, and Korea, America, Well, the volume is not so huge, but Europe, so we have the sales network in different parts of the world, and the situation varies from one country to another, and the users' preference and the orientation is different. So single-mindedly having a heavy production in one particular production site, rather than that, listening to the voice of the market, we will have a production in different sites. Currently, This does not require significant capital expenditure because we have a pre-existing plant with sufficient production capacity to secure sufficient cash. That is the nature of this industry. From that perspective, as a parent and a holding, we would like to render support to Sam's business. Will that do?

Yes, thank you.

Thank you very much, Mr. Omura. Next. Set management. Mr. Hayashida. I am Hayashida. Thank you. I have a question regarding electronics gas. In the third quarter, The electronic gas revenue sales year on year, how much did it grow? That's my question. In Asia and Oceania, excluding currency impacting, grew 18%. So is it equivalent to that or not? That's my first question. And on a related note... As you commented, I think you're starting to see a boom in this area. And towards next year, what kind of growth are you expecting next year? Just a rough image. Thank you very much. Right now, the electronic gas figures are not in my hands right now, so I cannot give you specific numbers. But maybe if Alan has some numbers, I would like to have him answer. But including memory, it is true that manufacturing is increasing. In particular, Korea's a large manufacturer and a Japanese manufacturer and famous manufacturers in the US. They are increasing gradually the production level. And as was mentioned, 18% is the number that we are seeing. It depends on the product, but similar to that level, I think, is being enjoyed throughout the world. The semiconductor manufacturing factories process is largely changing recently. They are not using, in some cases, they're using different gas from conventional gas. So how much new gas they are going to use and how we're going to evaluate that, we would like to have such information. And how to respond to their request is something that we need to figure out. but it's not that all gases can be produced locally and shipped and used locally. Some may have to be manufactured in Japan and shipped out to the U.S., et cetera. So how much gas is used where? Of course, we need to do some marketing investigation, so that will be linked to the manufacturing capability of our companies. And if, Alan, you have the numbers, can you explain?

Yeah, this is Alan Draper. So, you know, right now we are not disclosing. We don't disclose kind of volumes by business segment. We just started disclosing volumes for the total company maybe two years ago. And we're assessing as an organization whether we want to start disclosing more to the investors. So we know it's something that everyone's asking for. We just want to make sure that we feel comfortable disclosing. And we may do that going forward. So unfortunately, we can't disclose that now. But I will say the East Asia electronics business is doing a lot of the carrying when you strip out the acquisition. They're carrying the weight to get to positive volume activity. Thank you very much.

Thank you very much for your question.

With this, we would like to conclude the Q&A session. Prior to the conclusion, I would like to make some announcement. On the 31st of – on the 30th of March, we will have the announcement for the new midterm plan. And the March 24th, we will have an announcement of a midterm business plan. So if you haven't replied to your participation yet, please let us know. With this, we would like to conclude the earnings call. The contents of today's call will be made available on our corporate website's IR page later this evening. If you have any questions or require any further information, please feel free to contact our IR department. Thank you very much for taking the time to join us today. We truly appreciate your continued support. Thank you.