Nippon Sanso Holdings Corp

It is now time to begin the Nippon Sanso Holdings Corporation earnings call for FIE 2027 Q1. 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. And I will be the moderator for this conference. Thank you very much for your cooperation. I would like to give you some information about today's conference. First of all, the conference materials are the financial results, Tanshin and earnings call reference that we have just released. I would like all the participants to have them at hand. Next, we have the three main presenters today, Watanabe, President, CEO, and Kubo, Executive Officer, Group Finance and Accounting Office and CFO, Narichon Miki, Senior Executive Officer and CSO, Group Sustainability Management Office, Sawa Executive Officer, Group Business Management Office, Yoshida, General Management Accounting, and Kajiyama, GM of IR, also in attendance. As for today's program for today, at first, Watanabe's President, CEO, and then Kubo, CFO, will present the Q1 financial results. Hello.

Good afternoon, everyone. This is Watanabe from Nippon Sanso Holdings. Thank you for joining our first quarter earnings conference call today, despite your busy schedules. Following last month's Annual General Meeting of Shareholders, I assumed the position of Representative Director, President, CEO. While I am keenly aware of the responsibilities that come with this role, I also am excited about the opportunities ahead and am committed to unlocking the full potential of our company to drive further growth. Through continued dialogue with our shareholders and investors, we will strive to enhance corporate value and deliver sustainable growth. I intensely appreciate your continued support and look forward to working with you. Now, let me briefly walk you through the key points summarized on the slides regarding our business performance. Following my overview, our CFO, Mr. Kubo, will provide you with a detailed explanation of our financial results. First, I would like to provide an overview of our business environment. Looking back over the past three months, military conflict involving the United States, Israel and Iran have continued and uncertainty in the business environment has remained high. This includes concerns over potential navigation restrictions in the Strait of Hormuz, fluctuations in energy prices, raw material procurement risks and rising logistics costs. Although there were moves toward a ceasefire in June, As of July, military exchange between the United States and Iran have re-escalated and we recognize that the outlook for the regional situation remains highly uncertain. With regard to the impact on our company's business, we have seen increase in fuel and transportation costs as well as higher electricity costs particularly in Europe and the United States against the backdrop of elevated energy prices. In response to this cost increase, we are implementing price management and cost improvement measures and this policy remains unchanged. However, depending on the region, the impact of energy price trends and customer production plans may materialize with a time lag. We will therefore continue to monitor these developments carefully. On the other hand, looking at the electronics industry, Demand for servers used in data centers continues to expand driven by the spread of generative AI. We recognize that the semiconductor market remains active, particularly in memory. Semiconductor manufacturers are generally operating at high utilization levels and capital investment, especially in advanced fields, is continuing. We believe that this market environment represents a tailwind for electronics-related business. Next about our performance highlights. In this business environment, we have continued to thoroughly implement price management and productivity improvement initiatives as we have done to date. As a result, in the first quarter, we were able to improve profitability year on year. Details of each region and business segment will be explained later by our CFO, Mr. Kubo. So I will focus on the key highlights. First, in the U.S. segment, we maintained the trend of profitability improvement that began in the second half of the previous fiscal year, and we were able to improve profitability year on year. We believe this reflects the steady results of our price management and productivity improvement initiatives. In addition, volumes increased, mainly driven by new on-site projects, and we are also seeing signs of overall demand recovery. In the Asia and Oceania segment, we were able to raise the core operating margin to a double-digit level. We believe this was driven by a recovery trend in shipment volumes of electronic materials, gases for electronic applications as well as the positive effects of overall cost control and price management. Going forward as well, through continuous price management, cost control and productivity improvement initiatives, we will make efforts so that we can improve profitability in a sustainable manner. Next, about our investment status. Next, let me update you on our investment activities. Investments in the facilities that support the production and supply of industrial gases are essential for the continued expansion of our business and growth in earnings. While maintaining strict discipline in managing investment risk, our fundamental approach remains unchanged to capture growth opportunities and drive business expansion through proactive investments. I will discuss our capital investment backlog later in the presentation. Finally, let me touch on a few highlights. As I mentioned at the outset, following the annual general meeting of shareholders held on June 17th, Alan, CEO of Nippon Sanso Madison, and I were newly appointed as directors, and our new management structure is now in place. In Europe, as part of our efforts to strengthen our engineering capabilities, we decided to increase our investment in HisTech, an Italian engineering company. HisTech's advanced expertise in process engineering and plant design is highly aligned with our direction of enhancing engineering capabilities. By further combining the strengths of both companies, we aim to strengthen our competitiveness in Europe and enhance the value we deliver to our customers. Next, I would like to explain our investment execution plan or backlog going forward. As before, this chart shows the breakdown of planned capital investments by customer industry segment. As of the end of June 2026, our backlog stood at approximately 150 billion yen. This represents a decrease of roughly 30 billion yen from the approximately 180 billion yen level at the end of the fourth quarter. While some new projects were added during the period, the value of completed projects, including the hydrogen supply project for the Numarigaru refinery in India, exceeded the value of newly secured orders. Please also note, as indicated in the slide above, that this analysis covers projects with a value of approximately 500 million yen or more. Projects below this threshold are not included in the figures presented here. With that, I would like to hand over to RCFO Mr. Kuba, who will walk you through the financial performance. Mr. Kuba, please.

Yes. Thank you very much, Mr. Watanabe. This is Kubo, the CFO. Thank you for your participation today. I will now explain the business conditions or situation for the first quarter of the fiscal year ending March 2027. Please refer to page 9 of the materials you have in your hand. For the first quarter, The results for April to June 2026 showed sales up 14.9% year-on-year to 361.7 billion or 5.9% increase, excluding currency effects. Aside from 8.6% positive impact from exchange rates, This result was supported by solid price management and slightly positive volume mix, as well as contribution from acquisitions in Oceania and in Europe. Pass-through and surcharges were flat compared to the same time last fiscal year. Core operating income was 54.6 billion yen increased by 9 billion yen, a 19.9% year-on-year increase, and excluding the impact of foreign exchange, it increased by 9.8%. We continued to promote price management and productivity improvement initiatives and the core operating income margin expanded by 60 basis points from 14.5% in the same period last year to 15.1%. The EBITDA margin also improved by 120 basis points year on year to 25%. The volume for specialty gases or electronic material gas are steadily improving, especially in Asia, due to strong demand for semiconductors for AI and data centers. For non-recurring items, details are provided on page 22 of the material, but the profit from the sales of the headquarter land was partially offset by some loss related to this building and other costs related to global rebranding to 10 billion yen. Next, I will explain first quarter results by segment. Please turn to page 10 of the material for Japan business. Japan's first quarter revenue was 96.7 billion yen, a decrease of approximately 0.7 billion yen or 0.7% year-on-year. Although price management had an effect and electronics-related gases sales were firm, this was due to a decline in electronics-related equipment and installation works. The impact from foreign exchange was negligible. Segment profit of 12 billion yen was 9.7% decline year on year due to lower sales from electronics, equipment, and insulation businesses. In segment profit as well, the impact from foreign exchange was negligible. Please refer to page 11 of the material. The revenue in the U.S. for the first quarter was 99.1 billion yen, an increase of 15.2 billion yen, or 18%, compared with the same period last year. Not only shipment volumes of products increased compared with the same period of the last year, but also revenue from both industrial and electronics-related equipment increased together with Continuous strong price management. The impact of foreign exchange was a positive approximately 9.9 billion yen on revenue and excluding this effect, revenue still increased by 5.2 billion yen or 5.6%. Segment profit was 14.9 billion yen, an increase of 3.5 billion yen or 5.6%. In addition to productivity improvement and price management, increase in shipment volume contributed to the increase in segment profit. Next, page 12, Europe. Revenue in Europe for the first quarter was 97.8 billion yen, an increase of 15.4 billion yen or positive 18.8% year-on-year. Thank you very much. Thank you very much. The benefits of price management and the addition of revenue from the Spanish home care business acquired in the previous fiscal year, as well as steady performance in medical-related equipment and construction. Segment income was 18.9 billion yen, an increase of 2.9 billion yen or positive 18.4%. Of the increase in profit, 2 billion yen was due to foreign exchange effects, so excluding that impact, the increase was 0.8 billion yen or positive 4.9%. This was mainly due to initiatives in price management and productivity improvement. Next, regarding Asia and Oceania, please refer to page 13. Revenue for the first quarter in Asia and Oceania was 58.8 billion yen, an increase of 16.5 billion yen, or positive 39.2% year on year. The impact of foreign exchange was 6.2 billion yen. Excluding this impact, revenue increased by 10.2 billion yen, or 21.2%. Although the revenue from electronics-related equipment and insulation decreased, the increase was due to the contribution from the industrial gas business in the Oceania region acquired last fiscal year and the steady increase in shipment volumes of electronic materials gases. Segment profit was 7.1 billion yen, an increase of 3.7 billion yen, or 106.9%, compared with the same period last year. The impact of foreign exchange was 0.6 billion yen. Excluding this impact, profit increased by 3 billion yen or positive 74.7%. This increase in profit was mainly driven by contribution from acquired industrial gas business in Oceania region and the increase in shipment volume. Finally, on page 14, Yutaka Okuda, Toshiyuki Aida, Kazuhiko Nishikawa, Satoshi Suzuki Yutaka Okuda, Satoshi Suzuki The increase in profit was mainly due to sales growth and continuous cost reduction initiatives in Japan. Next, I will explain cash flows of the first quarter on page 25. Cash flow from operating activities increased 31.3% from previous fiscal year to 54.7 billion yen. Thank you very much. On page 23 of the material you have, we provide information on key management indicators such as the net debt to EBITDA ratio, which has been newly adopted as a KPI in the medium-term management plan, and we hope you will find this useful as a reference. That concludes today's presentation. Thank you for your attention.