Komatsu Aktie

I am Hiroshi Hosotani, CFO. I will now provide an overview of the business results for the fiscal year 2025. Page 4 shows the highlights of business results for fiscal '25. Foreign exchange rates were JPY 150.5 to the U.S. dollar, JPY 173.8 to the euro and JPY 99.2 to the Australian dollar. Compared to the previous fiscal year, the Japanese yen appreciated against the U.S. dollar and Australian dollar, but depreciated against the euro.

Net sales increased by 0.7% to JPY 4,132.8 billion. Operating income decreased by 13.7% to JPY 567.3 billion. The operating income ratio was 13.7%, down 2.3 points. Net income attributable to Komatsu decreased by 14.4% to JPY 376.4 billion.

Net sales reached a record high for the fifth consecutive year. ROE was 11.3%, down 2.9 points from the previous year. We plan to pay an annual cash dividend of JPY 190 per share, the same as the previous year, resulting in a consolidated payout ratio of 45.9%. Page 5 shows segment sales and profits for fiscal '25. Net sales in the Construction, Mining & Utility Equipment segment increased by 0.2% to JPY 3,806 billion.

Sales exceeded the projection announced in October, as demand was higher than expected. Segment profit decreased by 18% to JPY 491.1 billion. The segment profit ratio was 12.9%, down 2.9 points. Retail finance sales increased by 2.4% to JPY 126.1 billion. Segment profit increased by 24.4% to JPY 36.6 billion. Industrial Machinery and Others sales increased by 6.8% to JPY 238.8 billion. Segment profit increased by 38.5% to JPY 37.9 billion. I will explain the factors behind the changes in each segment later.

Page 6 shows the sales by region for the Construction, Mining & Utility Equipment segment for fiscal '25. Sales to outside customers for the segment increased by 0.2% to JPY 3,796.1 billion. Details of regional changes will be explained by Mining and Construction Equipment, respectively, on the following pages.

Page 7 shows the sales by region for mining equipment within the segment for fiscal '25. Mining equipment sales decreased by 0.6% to JPY 1,904.4 billion. In Asia, sales decreased due to a decline in demand following low coal prices in Indonesia and demand decline. However, sales increased in Africa and Latin America, where demand for copper mines remained strong, keeping overall sales flat.

Page 8 shows the sales by region for Construction Equipment within the segment for fiscal '25. Construction Equipment sales increased by 1.1% to JPY 1,891.7 billion. In real terms, excluding FX impact, sales increased by 0.2%. In Asia, sales decreased as it took time to adjust distributor inventories in Indonesia. Sales increased in North America, driven by demand for infrastructure, rental and energy and in Europe, where infrastructure investment is on a recovery trend.

Page 9 shows the causes of difference in sales and segment profit for the Construction, Mining and Utility Equipment segment for fiscal '25. Sales increased by JPY 7.8 billion as price improvement effects outweighed the negative impact of decreased volume. Although we focused on improving selling prices, segment profit decreased. The negative effects of decreased volume, product mix and higher costs due to U.S. tariffs and production costs outweighed the price improvements, resulting in a JPY 107.8 billion decrease in profits. The segment profit ratio was 12.9%, down 2.9 points from the previous year. The impact of tariffs in fiscal '25 amounted to JPY 64.2 billion.

Page 10 shows the performance of the Retail Finance segment for fiscal '25. Assets increased by JPY 238.3 billion from the previous fiscal year-end due to an increase in new contracts and the depreciation of the yen. New contracts increased by JPY 75.8 billion, mainly due to higher finance penetration in North America and Europe. Revenues increased by JPY 2.9 billion, mainly due to an increase in outstanding receivables. Segment profit increased by JPY 7.2 billion, mainly due to lower funding costs.

Page 11 shows the sales and segment profit for the Industrial Machinery & Others segment for fiscal '25. Sales increased by 6.8% to JPY 238.8 billion. Segment profit increased by 38.5% to JPY 37.9 billion. The segment profit ratio was 15.9%, up 3.6 points. For the automotive industry, sales of large presses increased. For the semiconductor industry, sales and profits increased due to higher maintenance sales of excimer lasers with high profit margins.

Page 12 shows the consolidated balance sheet and free cash flow. Total assets reached JPY 6,423.9 billion, an increase of JPY 650.4 billion, primarily due to the impact of the yen's depreciation. Inventories increased by JPY 195.2 billion to JPY 1,601.9 billion, affected by both the weak yen and U.S. tariffs. The shareholders' equity ratio was 54.7%, down 0.3 points and the net D/E ratio was 0.26x. Free cash flow for fiscal '25 was an inflow of JPY 249.7 billion, a decrease of JPY 56.8 billion from the previous year.

From Page 13, I will explain the progress of the strategic growth plan. The current strategic growth plan, driving value with ambition, which started in fiscal ' 25, set 3 pillars of growth strategy, create customer value through innovation, drive growth and profitability and transform our business foundation. Under create customer value through innovation, we began operating a power agnostics truck at a copper mine in Sweden as part of our efforts to address various power sources. We also conducted a POC test of a hydrogen fuel cell powered hydraulic excavator at a highway construction site in Japan. As part of our efforts for advanced automation and remote control, we are advancing the development of SPVs for next-generation mining equipment in collaboration with applied intuition. We are also promoting the practical use of autonomous driving technology for Construction Equipment through collaboration with Tier 4.

Next, under drive growth and profitability, we received the first major mining equipment order in the Middle East for the Reko Diq Copper Gold Project in Pakistan. We began deploying AHS in the U.S. and delivered the 1,000th unit globally. We will also strengthen our remanufacturing business through the acquisition of SRC of Lexington in the U.S. We have initiated the establishment of a training center in Côte d'Ivoire, and we'll work to strengthen our marketing and service capabilities in the Africa region.

Lastly, regarding transformer business foundation, in addition to embedding risk management through ERM and strengthening our supply chain through cross-sourcing and multi-sourcing, we accelerated human resource development for innovation and business transformation through the utilization of AI and digital transformation. We succeeded in improving scores in our employee engagement survey. Also, our global brand campaign led to high recognition at international creative awards.

Page 14 shows achievement of management targets in the strategic growth plan. Net sales for fiscal '25 increased by 0.7% year-on-year as improvement in selling prices offset the decline in sales volume. On the other hand, profit decreased year-on-year as the negative impacts of volume reduction and cost increases outweighed the effects of price improvements.

Regarding management targets, in terms of profitability, the operating income ratio for fiscal '25 was 13.7%, a 2.3 point decrease from the previous year. Despite efforts to improve selling prices, the results were significantly impacted by volume decline, inflation-related cost increases and higher costs due to U.S. tariffs. In terms of efficiency, ROE was 11.3%, achieving our target of 10% or higher.

For the retail finance business, we achieved our targets for both ROA as well as the net D/E ratio. Regarding shareholder returns, we expect to maintain a consolidated payout ratio of 40% or higher. Also, we executed the repurchase of JPY 100 billion of our own shares. Regarding the resolution of social issues, we have set 30 KPIs, and progress in fiscal '25 has been broadly in line. Among these, for the reduction of environmental impact, we achieved our target for CO2 reduction from production ahead of schedule. Reduction of CO2 emissions during product operation and the renewable energy usage ratio are also progressing largely as planned. That concludes my presentation.

With that, fiscal year 2026 forecast of the business, and that will be explained by Mr. Hishinuma.

This is Hishinuma, the GM from Business Coordination Department. I'd like to walk you through our forecast for fiscal year '26 in our primary markets.

Page 16 summarizes the impact of the situation in the Middle East and the U.S. tariffs as well as the underlying assumptions that have been factored into the fiscal year 2026 earnings forecast. And then the fiscal 2026 forecast incorporates items for which estimates can be made based on information available at this time. Regarding the situation in the Middle East, assuming the turmoil in the Middle Eastern countries and soaring oil prices and supply chain disruptions will continue throughout the year. We have factored in a decrease in sales of JPY 90.1 billion and an increase in cost of JPY 18.8 billion. However, regarding the impact on production due to shortages of crude-oil-derived materials, while there is a risk, the situation is unclear at this time. Therefore, it has not been factored into the fiscal 2026 outlook.

Now on to U.S. tariffs. Based on assumptions of Section 122, additional tariffs will apply throughout the year and the revised steel and aluminum tariffs will apply from April 6 throughout the year. We have factored in additional costs of JPY 67.8 billion. However, we have also factored in JPY 30 billion in refunds, resulting in a net cost increase of JPY 37.8 billion.

Page 17 provides an overview of the outlook for fiscal year 2026. We anticipate exchange rates of JPY 150 to the U.S. dollar, JPY 170 to the euro and JPY 106 to the Australian dollar. We project net sales of the JPY 4,118 billion, a 0.4% year-on-year decrease and operating income of the JPY 508 billion, a 10.5% year-on-year decrease. Net income is projected to be JPY 318 billion, a decrease of 15.5% year-on-year.

Furthermore, at the Board of Directors meeting held today, a resolution was passed to repurchase treasury stock up to a maximum of JPY 100 billion or 25 million shares and to cancel all repurchase shares during fiscal year 2026. ROE for fiscal '26 is projected to be 9.1%. The dividend per share is planned to be JPY 190, the same as previous year, and consolidated dividend payout ratio is projected to be 53.8%. In addition, when the JPY 100 billion share buyback announced today is included, the total payout ratio is projected to be 85.4%.

Page 18 presents the revenue and profit forecast for each segment. Revenue for the Construction Machinery and Mining Equipment and Utilities segment is expected to decrease by 0.4% year-on-year to JPY 3.79 trillion, while segment profit is expected to decrease by 10.4% to JPY 440 billion. Revenue for Retail Finance is expected to increase by 1.1% year-on-year to JPY 127.5 billion, while segment profit is expected to decrease by 1.6% to JPY 36 billion.

Revenue for Industrial Machinery and Others is expected to increase by 0.1% year-on-year to JPY 239 billion, while segment profit is expected to decrease by 2.5% to JPY 37 billion. We'll explain the factors behind the change in each segment later.

Page 19 presents the regional sales forecast for the Construction Equipment and Utilities sector for fiscal '26. Sales of this segment are projected to decline by 0.5% year-on-year to JPY 3,778.2 billion. Details of the year changes by region are provided on the following pages, broken down by Mining Machinery and General Construction Machinery.

Page 20 presents the regional sales forecast for Mining Machinery within the Construction Equipment and Utilities segment for fiscal '26. Sales of mining equipment are expected to decline by 2.4% year-on-year to JPY 1,858.5 billion. Sales are expected to decline in Asia and Middle East due to sluggish demand for coal and impact of situation in the Middle East. In North America and Oceania, demand is expected to decrease as mining companies complete their equipment renewal cycles, leading to a decline in sales.

Page 21 shows regional sales forecast for general Construction Equipment within the Construction Equipment and Mining Equipment Utilities segment for fiscal '26. Sales of general Construction Equipment are forecast to increase by 1.5% year-on-year to JPY 1,919.7 billion, while sales expected to decline in Middle East and Asia due to regional situation. Overall sales of general Construction Equipment are projected to increase year-over-year, driven by growth in North America, where demand for infrastructure energy project remains strong and in Latin America, where public investment is robust.

This page outlines the factors contributing to the projected changes in sales and segment profit for this segment. Although we are striving to improve selling prices, sales are expected to decrease by JPY 16 billion year-on-year due to negative impact of lower sales volume caused by situation in the Middle East. Segment profit is expected to decrease by JPY 51.1 billion year-on-year, although we will strive to improve selling prices. This is due to the negative impact of lower sales volume, the expanding impact of tariffs and rising procurement cost. The segment profit margin is expected to decline by 1.3 percentage points year-on-year to 11.6%.

Page 23 presents the outlook for retail finance. Assets are expected to increase by JPY 23.6 billion compared to the end of the previous fiscal year as new lending exceeds collections. New lending volume is expected to increase by JPY 5 billion year-on-year as we anticipate a high utilization rate continuing from the previous year. Revenue is expected to increase by JPY 1.4 billion year-on-year, primarily due to an expansion in outstanding loan balance. Segment profit is expected to decrease by JPY 0.6 billion year-on-year, primarily due to higher costs. ROA is expected to decline by 0.1 percentage points year-on-year to 2.3%.

Page 24 presents the sales and segment profit outlook for Industrial Machinery and Others. Sales are projected to increase by 0.1% year-on-year to JPY 239 billion, while segment profit is expected to decrease by 2.5% year-on-year to JPY 37 billion. In the Semiconductor Industry segment, sales are expected to increase due to customers ramping up production amid the market recovery. However, for the automotive industry application, revenue is expected to rise, while segment profit is expected to decline due to factors, such as decreased sales of large presses and automotive battery manufacturing equipment as well as rising procurement costs resulting from the situation in the Middle East. The segment profit margin is expected to decline by 0.4 percentage points year-on-year to 15.5%.

Starting on Page 25, we will explain the demand trends and outlook for the 7 major Construction Equipment categories. The demand figures for the 7 major Construction Equipment categories include the mining equipment. The figures for the fiscal year '25 are preliminary estimates based on our projections. Demand for fiscal '25 appears to have increased by 5% year-on-year. For fiscal year '26, we anticipate a year-on-year decline in demand ranging from 0% to negative 5%. In addition to decline in demand in Indonesia, we expect a decrease in demand in Middle East and neighboring countries due to the deteriorating situation in the region.

Page 26 outlines the demand trends and forecast for the North American markets. Demand for the 2025 fiscal year appears to have increased by 3% year-over-year. Demand remains strong in sectors, such as data centers and other infrastructure, rentals and energy. The demand forecast for '26 fiscal year is expected to remain on par with the previous year. We anticipate the infrastructure and energy sectors will continue to drive demand as we go forward.

Page 27 shows the demand outlook and demand for European markets. The demand units for 2025 fiscal year is expected -- was expected to increase by 4% previous year. And the demand outlook for '26 is expected to be 0% to positive plus percent -- positive 5%. And Germany and the U.K. public investment demand is expected to lead overall demand, and we are expecting to see the robust demand.

Page 28 covers demand trends and outlook for the Asia market. Demand for '25 fiscal year appears to have increased by 5% year-on-year. In Indonesia, although the demand for mining machinery declined due to sluggish coal prices, overall demand increased due to rising demand for general construction machinery, such as food estate projects. In India as well, demand increased driven by aggressive infrastructure investment. The demand outlook for fiscal '26 is projected to be a decrease of 5% to 10%. While demand in India is expected to remain robust, demand in Indonesia is forecast to decline significantly due to the government's policy to reduce coal production and the impact of the introduction of the B50, which is biodiesel fuel regulations.

Page 29 outlines the trends and outlook for demand in the Japanese market. It appears that demand for the 2025 fiscal year declined by 13% compared to the previous year. We expect demand for '26 to remain at the same level as the previous year. Although nominal construction investment is increasing due to inflation, real-time growth -- real-term growth is stagnant due to soaring material and labor costs, and there are currently no signs of recovery in demand.

Page 30 presents trends and outlooks for the prices of key minerals related to demand for mining machinery. We expect copper and gold prices to remain at high levels going forward. While both low grade and high-grade thermal coal are currently trending upward, we will continue to monitor future developments closely.

Page 31 shows the trend in demand for mining machinery. It appears that the number of units in demand for fiscal '25 decreased by 10% year-on-year. Overall demand declined due to a significant drop in demand for coal-related machinery in Indonesia. The demand forecast for fiscal '26 is expected to be a 10% to 15% decline. Although demand for copper and gold mining equipment is expected to remain at a high level, overall demand is projected to decline due to weak coal-related demand and the completion of the replacement cycle in North America and Oceania and the impact of the situation in the Middle East. Page 32 presents the sales outlook for the construction machinery, mining equipment and Utilities segment, including equipment, parts and services.

In fiscal '25, parts sales increased by 0.4% year-on-year to JPY 1,055.2 billion. The aftermarket segment as a whole, including services accounted for 52% of total sales. Excluding the impact of ForEx, total aftermarket sales increased by 1% year-on-year. For fiscal '26, parts sales are projected to increase by 2.2% year-on-year to JPY 1,078.5 billion. The aftermarket overall sales ratio, including services, is projected to be 53% and aftermarket sales, excluding ForEx effects are projected to increase by 3.1% year-on-year.

The Page 33 presents outlook for capital expenditures and other investments for fiscal year '26. Excluding investments in rental assets on the left, capital expenditures are expected to increase year-on-year due to investments in production and sales facilities as well as the reconstruction of the head office. Research and development centers shown in the center are expected to increase year-over-year due to focused investment in adapting diverse power sources and automation. Fixed costs shown on the right incorporate the effects of the structural reforms. However, they are expected to increase year-over-year due to wage increases and higher R&D expenses.

Next, I'll explain the main topics. Page 51 now. Komatsu has acquired a remanufacturing business for construction and mining machinery components and parts from SRC of Lexington through its wholly owned subsidiary, Komatsu North America, Komatsu America Corp. In 2009, Komatsu transferred its North American remanufacturing business to SRC Lexington, and since then, has continued to do business with the company as one of its most important suppliers for Komatsu's North American remanufacturing operations.

With this acquisition of SRC of Lexington's remanufacturing business, Komatsu will further expand this operation by establishing a new dedicated manufacturing facility in North America, one of the largest markets for construction and mining equipment.

Page 52. In December 2025, Obayashi Corporation, Iwatani Corporation and Komatsu conducted demonstration test of hydrogen fuel cell power hydraulic excavator during rockfall prevention work on the Joshin-Etsu Expressway. The test confirmed several benefits, including operational performance equivalent to that of conventional diesel-powered models and reduced operator fatigue due to the absence of vibration. At the same time, we reaffirm the challenges facing practical implementation, such as the need for higher capacity and the faster hydrogen supply and refueling systems. The three companies will continue to conduct the studies and verification tests aimed at practical implementation.

Page 53. Komatsu exhibited at CONEXPO International Construction Machinery Trade Show held in Las Vegas, U.S.A. from March 3 to 7. The company showcased a new generation of vehicles, including bulldozers and hydraulic excavators equipped with the latest features, such as intelligent machine control as well as articulated dump trucks designed to further improve operational efficiency. Komatsu highlighted its initiatives to leverage data from vehicles and digital solutions to enhance customer productivity and safety while reducing total cost of ownership.

Page 54. Komatsu has acquired Malwa Forest, a forestry machinery manufacturer through its wholly owned subsidiary, Komatsu Forest. By acquiring technological capabilities and product lineup for lightweight compact cut-to-length forestry machinery, specifically designed for thinning operations, a segment in which Komatsu previously had no presence, the company will contribute to value creation across the entire circular forestry process.

Page 55. We have reached a cumulative total of the 1,000 units for our ultra-large autonomous dumb truck equipped with autonomous haul system, AHS, for mining operations. Since introducing AHS for the first time in the world in 2008, the cumulative total haulage volume has exceeded 11.5 billion tons. That concludes my presentation.

Now we would like to move on to the Q&A session. So first, we would like to take any questions from the people here. Maekawa-san from Nomura, please.

This is Maekawa from Nomura. I have 2 questions. First, regarding tariff impact and price increases. Hosotani-san, you mentioned this in your presentation, but last fiscal year, JPY 64.2 billion was the cost impact. I think originally, you were expecting JPY 55 billion and about JPY 120 billion, which is 4 quarters -- a quarter multiplied by 4, what's going to be your expectation for fiscal '26? So what kind of changes did you experience in reaching your results for fiscal '25? Can you confirm that first? And what have you accounted for, for this fiscal year?

This is Hishinuma speaking. Regarding U.S. tariffs, there are no major changes on a dollar basis. While we were converting it at JPY 140 before, but now it's at JPY 150 against the dollar or to be more exact, JPY 150.5 against the dollar. Therefore, on a U.S. dollar basis, it's not different. It hasn't changed. It's just because of the FX impact. For fiscal '26, the impact will materialize on a full year basis. So it was about around JPY 600 million before, but it should reach around JPY 900 million.

Other than that, we have accounted for refunds as well, which is equivalent to the reciprocal tariffs that are likely to be refunded. So that's what we have accounted for.

So if it's $900 million, it's about JPY 135 billion. For steel and aluminum, how much of an increase? How much of a decrease are you expecting from reciprocal? And the JPY 30 billion refunds are also included in the JPY 135 billion. So when you look out at March '28, is it going to become JPY 165 billion? So can you break down the JPY 135 billion? What has been going up, what has been coming down? Or can you talk about how it's going to rise from the JPY 64.2 billion?

Well, regarding the period, before, it was from the middle of the year. So at the beginning of the year, we did have inventory from the previous year. So we started paying the tariffs at a later timing from a payment point of view. From a P&L impact, we had year-end inventories. So it was relatively low. But in fiscal '26, from the beginning of the fiscal year, we are making payments. So there is a period difference. And regarding the details, reciprocal tariffs may be gone. But for steel and aluminum, we used to calculate the content in order to reduce the level of tariffs paid. But now it's at 25%. So the impact is greater. So that is one reason why it's greater than before. From that point of view, for the refunds, that's about last fiscal year's portion. So for fiscal '27, we won't have deferrals from the previous fiscal year. Therefore, we will see full impact. So if nothing changes, it's likely to be JPY 165 billion.

Next year, of course, that 10% or Article 122, when that's going to end is a question mark. But well, if we're working off the assumption that the same thing is going to materialize for the next year, that's what we're accounting for, but we are not sure. In that case, it's JPY 135 billion, for next year, the following year, if sales and production is not going to change, it should be about JPY 130 billion for fiscal '27 as well. And this year, it's JPY 30 billion less, or excuse me, for the results for fiscal '25, we already said that it was JPY 64.2 billion.

And for fiscal '26, originally, we were guiding JPY 130.7 billion or JPY 130.8 billion. But because of the refunds that we were explaining, which is worth USD 200 million, which we view as JPY 30 billion in terms. So when you account for that, it should be a little bit over JPY 100 billion of an impact on our P&L.

Got it. For price increases, and on Page 22, when you look at the projections for selling prices, it's plus JPY 68.9 billion. So hypothetically, even if you don't get the refunds at JPY 130 billion, you should be able to make up for it through price increases. Are you making progress? And have you gained visibility already? Can you also speak to that?

This is Hishinuma speaking. Regarding pricing, we did a bottom-up approach looking at the business plans of our subsidiaries, but price increases are also accounted for, for the U.S. But Caterpillar is not raising prices, and those are the circumstances. So there may be a risk. However, for the tariff increases in the U.S., we won't be able to absorb it completely just with the U.S. So global price increases need to happen. So that's what we're accounting for.

Understood. My second question is for this fiscal year and your view on volume. Also going back to Page 16, in light of the Middle Eastern conflict, you have reduced sales by JPY 90.1 billion. And last year, when there were some tentative assumptions for GDP as much as you can see, what can you see, what can you not see? So what are the assumptions that led you to JPY 90.1 billion? Because in mining, when energy prices are high, I think that may also serve as a positive. So I was wondering how you view this situation.

This is Hishinuma. First, regarding demand for the Middle East, a 60% decline is expected. So that has been accounted for, 6-0 percent. And also due to the impact from the Strait of Hormuz, we believe that costs are likely to increase and especially negative impact on countries in Asia. So we are expecting sales to decline. But when it comes to higher coal prices, there is a chance that they may stimulate demand. But when you look at countries like Indonesia, it's true that what originally used to be $40, $50 a ton are now reaching $60 a ton. But even so, we are seeing a higher idle standby rate of equipment, and we're not sure if this is going to continue or not in the future. So demand has not really picked up.

So currently, people are still on the sidelines waiting and seeing. There may be an opportunity, but so far, we have not accounted for that in our expectations.

Just to add a comment to that. Last year, U.S. tariffs just started. So it was hard to account for it in our guidance. But based off IMF predictions and so forth, we have viewed how much GDP is likely to decline and what's going to happen to demand. And that is why we accounted for JPY 50 billion decline in sales. But the global economies have not yet fallen, but we try to account for risk as much as possible to the extent that we can calculate. And also the Middle Eastern crisis, we don't really know its impact clearly yet, but our way of thinking is the impact from the Strait of Hormuz is likely to continue. That's the assumption we have. But then because we are dependent on crude oil as well as LPG, like -- in regions like Africa as well as Asia are likely to be affected.

So like Hishinuma-san explained, we are expecting a demand decline in Asia as well as in the Middle East, leading to a sales decline in turn. And also accounting for our gut feeling that we have experienced from the past, we have accounted for a JPY 90 billion impact. And also due to higher crude oil prices, we are already seeing material prices increase that are crude-oil-derived, and that impact is JPY 18.8 billion. So this is purely looked at as a cost increase. So JPY 90 billion of volume decline and JPY 18.8 billion of a cost increase SVM-wise is what we've assumed due to what I've just explained. On the other hand, of course, the impact may be greater than our assumptions or the crude-oil-derived goods may fall to a shortage, which may affect our production, but that is still not known. So we have not accounted for that negative impact.

I would like to move on to the next one, Sasaki-san from UBS.

This is Sasaki from UBS Securities. I've got several ones, but the first question is the figures I always ask you. Page 22, this waterfall chart and volume product mix and also the cost variance. Looking at the Page 9 and Page 22, the plan and actual performance, and there have been some figures related to tariffs, but could you please give us the details around those factors? And this volume mix has been negatively contributed to your performance. So the negative JPY 32.2 billion, that's in your plan, but what gets you to that number?

This is Hosotani speaking. First, Page 9. Page 24 and Page 25 variance. First in segment profit, JPY 72.6 billion of the volume mix and product mix difference, just hold on a moment. I'm sorry on this one. First, JPY 25.8 billion for the volume difference, and that was a negative. And also product mix, JPY 25.1 billion, that's included. Now factors for this, is that as we explained, electric dump truck, as we explained those up until the last fiscal year, and it's not that they were able to enjoy the higher profitability, but the mix increased for this electrical dump truck. And also Chile contract business margin declined slightly.

And also regional mix had negatives here. And among the region, the highest profitability comes from Indonesia. And sales volume significantly decreased in Indonesia market. And that's why regional mix has seen the impact from that and JPY 19.6 billion approximately. Now moving on to the right and production cost, JPY 81.6 billion negative. Let me give you the breakdown for that, which includes the U.S. tariff cost increase, JPY 64.2 billion.

This is only applicable to the Construction Equipment of the JPY 64.2 billion and other ones, like the variance coming from industry others, Industrial Machinery and Others. And also cost variance, let me give you the breakdown for that. From third party, we purchased components, the major components, and those costs started to inflate. So that's why there is the major variance of cost of goods.

And fixed cost variance, fiscal '24 to '25, the labor cost significantly increased. Apology, you talked about the volume variance, apology, hold on a moment. For fixed cost, JPY 20 billion comes from the labor cost and the SGP projects were underway. And also the variance in comparison between '25 and '26, JPY 31.8 billion of the volume that's been included here, and of which the volume mix amounts to JPY 40 billion. JPY 40 billion, the big chunk comes from Indonesia. Hold on a moment. Other than volume mix, the regional mix and product mix are written here. Fiscal '25, the losses we have to make were all gone for '26. So JPY 31.8 billion included volume mix and that amount to JPY 40 billion. That's all from me.

What about the variance of cost of goods? Because I guess the cost increases comes from the conflict in the Middle East.

Yes. Fiscal '25 and '26, JPY 49.6 billion for production. The U.S. tariff's impact is included here in this number. About JPY 67 billion is included here, but at the same time, the JPY 30 billion of the refund is included. So the net it all out, the JPY 37 billion of cost increase is included here. And also other cost of goods variance, JPY 10 billion-some is also included.

My second question, let me take this opportunity to ask this question of Hosotani-san. You took office as CFO. Give us your commitment as a CFO as we look ahead. For example, as a Komatsu, the capital efficiency improvement and the better margin, I mean, there could be a number of the lists that you want to attain, but you're succeeding Horikoshi-san and took office as CFO. And as one of the members of the top management team, what are the things would you like to achieve? I mean this is your first time to be here in a financial briefing. Do you have any commitment would you like to make? That's my second question.

Well, you set the high bar for me actually, but let me try to answer. My predecessor, Horikoshi-san, mentioned this too. But basically, we always have to be mindful of the shareholders in running the business. And I would like to be contributing to the way we run the business. So shareholder returns and balance sheet and ROE, those indicators are the things I always look. For example, in comparison '25 to '26, the net income -- I mean, volume declined because of the conflicts in the Middle East. So net income declined.

Business size and the revenue size need to expand from our perspective. And to that end, we are engaged in various activities. As we expand the business size, I would like to be of a support for the better decision on the management level so that we are able to have a better top line. I'd like to engage in those activities as CFO.

Is it more like a better top line? Is it one of the things, which you like to commit? That's what I get from your message. What made you think that way?

Well, for example, as we look at the current status, the conflicts in the Middle East and there are impacts from that. It takes time until the situation will go back to where it has been. So in the longer term, this is the one-off factor. But the U.S. tariff is concerned, some say this is a one-off factor, but at the end of the day, this is about the balance of the export-import of the United States and other countries and try to correct this imbalance. So these costs are permanently are subjected to occur. So that's why we need to continue to contribute to the cost, but net profit size need to be secured to an extent, which means that we are able to -- we need to have a better top line.

Let's take the next question from SMBC Nikko, Taninaka-san.

This is Taninaka from SMBC Nikko. Regarding mining equipment, mainly, I have 2 questions. For metal prices, including coal prices, they are rising lately. And in the new fiscal year, when you add up the after services, you're only accounting for about 3% growth year-over-year. I think you're being conservative when you think about the underlying trends. And when you look at the underground mining equipment manufacturers' results, their growth rates look stronger. So can you talk about the backdrop to how you derive these assumptions?

This is Hishinuma speaking. For mining equipment, as you rightly said, prices have been going up for, obviously, copper and gold and so forth. But on the other hand, for equipment and the way we look at demand, the replacement cycle is pretty long. So there's ups and downs. And also when you look at it by region, there are regions where we're expecting higher demand and other regions where we're expecting lower demand. That's for equipment. And the growth we're expecting for the aftermarket business may look small. However, we did see drop-offs that were quite significant in Indonesia and also in the Middle East, including reman, we have been growing the business, but all in all, the numbers may not look as dynamic as you were expecting.

My second question is with respect to the replacement cycle and you talked that it has run its course. From 2011 through 2013, demand for mining equipment grew quite substantially. And then you have a replacement cycle. And are you trying to say that the message was that the replacement cycle is over? Or are you saying that over the short term, there are ups and downs and replacements are at a standstill at this moment? So for March '28, are you trying to imply that demand is going to go down even more?

Well, the cycle we're referring to is not about the 2011 cycle. It's more about whether we have big deals or not in recent years. For example, in North America, in '24, '25, in North America, there were some big deals. And we have been explaining that some big deals have been absent in 2025 because there were more in 2024. So they were less in 2025. And in 2026, we are expecting at this moment less of large deals. But regarding the share volume of general deals, we are actually seeing an increase. So it's just a matter of whether or not we are carrying large deals or not.

For example, in the case of Australia, in fiscal '26, we're not expecting that much of big deals, so to say. That's what we were referring to. But for super large dump trucks that we manufacture in North America, when you look at our production plans and compare '25 with '26, production volume is not going to change that substantially. Even if the sales may not be recognized in 2026, there is a possibility that it's going to go into 2027 sales. And rope shovels are being produced at 100% capacity. And we are also working on fiscal '27 already. And because copper is doing well, we're not really expecting that much a decline. However, we need to monitor closely the trends in Indonesia.

I would like to take a question from Adachi-san from Goldman Sachs.

This is Adachi from Goldman Sachs. I have 2 questions, too. The first one, the mining equipment. As Hishinuma-san shared, Asian market, usually coal prices are on the rise, which is positive, but diesel prices and operating costs have been boosted, which is negative and negative outweighed the positive and the dormant that populated the vehicles is increasing. And what are the changes that you have seen for dormant and idle vehicles? And I think up until Q1 last fiscal year, there was a last minute demand was very strong and that sub demand in Q2. But as you look ahead, Q1, you see the sales can drop from the fiscal year, but do you think that, that will be flattish after Q2? Or do you think that Q2 and beyond, do you think the moderate decline continues, especially for the Indonesia mining equipment market?

For Indonesia, as you raised a number of the points, the idle vehicles ratio and what are the historical trends? For example, 2024, the end, 5%, they used to be 5%. Then fiscal '25 in June, 8.5%. And then that was up to 9.6% in January and 10% afterwards and 17% in January. So the coal prices goes up and even the workload increases, and they are able to handle the increase in volume with the coal prices with the current volume. So B40 and now start in July, it starts B50 and production volume, 800 million tonnes, 600 tonnes -- 600 million tonnes. And there are some talks of increasing the volume. Throughout the year, we are not 100% confident that there are bound to increase. So fiscal '26, I believe that we are seeing this as a cautious note.

As Tanigawa-san and yourself discussed a bit, Indonesian coal and precious metal have been pretty strong in prices and the production plan is at full, as you said. In order to accelerate it, would you like to accelerate further on that point?

In North America production capacity ramp-up, rope shovel might be at full. The electric dump truck production plan for fiscal '26 and '25 will be equivalent, I said. But versus what it has been in the past, there are some time where we produce more. So at the full capacity, if we produce them, and there could be some more availability. So in North American market, we are not -- we haven't gone to the point where we are dealing CapEx.

Okay. Next one is cash flow and the buyback is announced. And the previous year and two years ago, like those 2 years, you have announced JPY 100 billion. What are the decision-making process like? And behind that, free cash flow assumption were -- would have been calculated. How much free cash flow you're expecting, JPY 160 billion is expecting, I guess. So how much of the operating cash flow and the working capital level? And what are the production assumption to the working capital? Maybe you can have a breakdown approximately. Do you have any up and down of your planning for production?

This is Hosotani speaking. For free cash flow, fiscal '24, free cash flow, JPY 300 billion-or-some. That's fiscal '24. And it's been a few years, the JPY 250 billion to JPY 300 billion of the free cash flow. That's our track record of the free cash flow. Now with this amount, dividend and buyback of the JPY 100 billion, we have enough excess capacity to do that with this amount because it amounts to JPY 300 billion. Now for fiscal '26, free cash flow or as planned of the JPY 250 billion plus and deposits and others, I mean, sales were not growing and profits declined, but the working capital is expected to improve. So as a result, so we are able to generate equivalent level. JPY 300 billion plus of the free cash flow are our commitment. So that will continue for 3 years. And M&A portion excluded, then JPY 1 trillion. And that's a commitment and goal we set ourselves.

There are people raising their hands on Zoom. So we would like to take that question from [ Otake-san ], please.

Can you hear me? This is Otake speaking.

Yes, we can.

Just wanted to confirm again. First question is regarding the impact from U.S. tariffs, please let me sort it out. For the year ended in March 2026, the impact was JPY 64.2 billion on your P&L. Is that correct?

That is correct. JPY 64.2 billion for Construction Equipment. That's for Construction Equipment. But for Industrial Machinery, there are -- there is a bit of tariff's impact as well that has been incurred.

Up until the previous results, according to the materials, you were saying JPY 55 billion of impact from tariffs. So does this include Industrial Machinery as well on top of Construction Equipment?

It's only several hundreds of millions of yen attributed to Industrial Machinery. So the level doesn't really change. There was about JPY 400 million of an impact from Industrial Machineries and Others.

Got it. And for -- from the assumption of JPY 55 billion, the reason why it increased to JPY 64.2 billion is due to FX impact, right?

Yes, exactly.

No differences on the U.S. dollar basis, broadly speaking. It's just due to the differences in conversion FX rates. So for this fiscal year, for the year ending March '27, excluding refunds, you're expecting JPY 130.8 billion. Is that correct?

That is correct.

Got it. And the impact amount, the reason why it's higher, you were saying that the content calculation has been abolished and that has had an impact. Can you walk me through what that means and entails?

Regarding content, for steel and aluminum content, you calculate how much is included for -- as part of your product prices or cost. And that is subject to steel and aluminum tariffs and the rest to reciprocal tariffs. So by calculating the content, we have been able to reduce its cost. And even for derivatives, it is 25% now. So when we were calculating the content, it was less than 25% basically.

Or by doing a precise calculation of content, you have been explaining from before that you are able to reduce the cost. But I guess that is not possible anymore. Then in order to reduce tariff impact going forward, such as reviewing our supply chain or logistics, I think that will be key, but with respect to these measures, in order to reduce the negative impact, what are you focusing on? Or what would you like to focus on going forward?

Well, last year, in April, we shared with you various types of countermeasures we were planning for. For the products that used to go through North America that went to ultimately Canada or Latin America, by shifting to direct shipments instead and shipping out to Canada directly, we will be able to alleviate the impact, and that is fully contributing already. And there are some parts that are going through the U.S. as well. But by directly shipping and also creating warehouses in Panama, we are trying as much as possible to reduce the impact. And for countermeasures, for steel and aluminum tariffs, not by simply just paying for it, but by calculating the content, we had been trying to minimize the tariff impact.

However, now it's going to be 25% across the board. So that countermeasure is no longer viable. However, reciprocal tariffs are now gone. So on a net-net basis, the actual amount of payments are slightly up. You referred to the P&L, but the impact on '25 and the impact on '26 because of more inventory impact, it's going to become a greater impact. And the difference in tariff rates have also been impact -- are expected to impact us as well.

I see. So you are working on various initiatives. But in order to mitigate tariff impact even more, one kinds of feels that it may be challenging. But what would you like to do additionally? Or do you feel that you will be able to reduce its impact?

Of course, increasing production in the U.S. is something we are considering. But from a cost point of view, it is also challenging, which is preventing us from doing so. So I think it's more of a buildup of various improvements. And hopefully, we could raise prices to make up for it globally or reduce costs globally as well so that we can ensure that we are profitable. And sorry for going on, but for price increases, you were talking about Caterpillar and that they are not raising prices recently, but currently, in the U.S. as well as in other regions.

When you look across the competitive landscape, how are the price increase trends from your point of view? How do you view the market?

Well, we have been communicating this from before. But from several years ago, in accordance with higher steel prices, we have been increasing prices, but our competitors have been more bullish in raising prices. So we were a little bit behind. But in order to catch up, we have continued to steadily raise prices. But now steel prices have calmed down and price increases just limited to higher tariffs is not really happening, and that is why we are seeing difficulty here.

My final question is about the Middle East and its impact. JPY 18.8 billion of a cost increase is what you're expecting. Can you break it down? How would it look like? Can you share it with us as much as possible the breakdown?

It's -- costs are rising and parts are rising due to oil-derived products and also logistics, transportation costs because of higher fuel costs, that has been accounted for as well. The majority is because of higher parts prices and cost increases.

Meaning fuel, oils, paint, gas that are oil-derived, material prices have already been going up quite a lot. So that has been accounted for as a cost increase.

I see. So procurement cost increases is about maybe 80% of the cost increase and maybe 20% to 30% associated with seaborne transportation.

Maybe it's like a 70-30 split.

I would like to take questions from anyone joining us online. BofA, Hotta-san.

This is Hotta from Bank of America. I have 2 questions, too. First, with the conflicts of the Middle East and that has impacts on volume and other mix. On the production front, you have uncertainties, so you haven't incorporated them into the guidance, as you said. But if possible, on production front, how much impact do you think that there is? You said there is nothing for now, but given the current situation, how much potential impacts you might have to suffer from? Or are you saying that you have enough inventory, so you are able to have the muted impacts from that on the production front? Give us the details around production areas, if there's anything you can share with us.

Well, first on production area or production front. First, we try to sustain production work, and we try to work with suppliers. We try to secure enough works and components. And how far we are able to secure them? It's not to say that we are able to secure them for 6 months and 1 year ahead. So we always have to cement where we are, and we try to secure production. To the worst-case scenario, naphtha and other materials could have issues in the future. And if and when, if we can secure some of the materials from plants for any of the one single supplier and the production itself could be impacted. But when would that happen? We're still not sure. That's why we haven't incorporated the potential factors into the guidance this time.

Okay. My second question is the mining equipment. You said replacement cycle. And you said that there is a completed replacement cycle now, but fuel is on the rise. So a little bit outdated equipments. Needs to have -- needs to be a newer ones so that, that uses less oil or less fuel. Is that kind of the replacement demand that you're seeing?

Well, it's not going to be a replacement cycle you're going to see in the passenger cars.

Okay. But to stay on the same topic of the fuel prices, if you look at the Australian market, diesel shortages is very dire and SMEs mining companies started decide the shortage of diesel and they need to compromise the utilization ratio recently. And BHP has no issue whatsoever because they are big enough. But Australian market is primarily a market where the utilization ratio for the machine is declining. Is that something you're saying? Or isn't there any impact on your operation whatsoever in terms of the diesel shortage?

Well, we haven't witnessed any of the specifics, be it suspension of the operation itself, but there are risks, yes.

There's another question from online, McDonald-san from Citigroup Securities.

Can you hear me?

Yes, we can.

This is McDonald speaking. I have a question about Page 26 in North America. Looking at the right-hand side for Q4, for the 7PLs, it was plus 7%. And going back, I think for the first time in several occasions, it was a good number, maybe several years, where you're seeing an uptrend even so for this fiscal year. For volume, you're expecting flattish demand compared to fiscal '25. The non-housing space, when you look at the segments like mining, energy, road construction and data centers and so forth, for this fiscal year, I kind of think that you're conservative in your projections for North America this year. Of course, I'm sure you have a lot of concerns in your heads. But why are you guiding flattish demand? Shouldn't you be guiding having an assumption that is more positive? That's my first question.

Thank you for the question. For North America, as you said, what we show in the material for Page 26, at the bottom right, we show the breakdown of demand by segment, divided into rental, energy, infrastructure that are performing positively across the board. It was only housing as well as government-related that was negatively contributing. So all in all, the trends are positive. And after completing fiscal '25, we saw plus 3% growth in demand.

So when you listen to what customers are saying even, they have about order backlog of 6 months to 2.5 years. Therefore, we do believe the market is quite strong. So our assumptions are flattish, but we're not really anticipating any major negatives. Therefore, yes, you can say that we are being conservative.

Well, from a regional point of view, Indonesia apparently had the highest profitability in the past, but if you're so bearish about Indonesia, the highest profitability as a market, I guess, is coming from North America in the non-housing segments. Do you think that's true that it has the highest margins?

If you just look at SVM, excluding fixed costs, the procurement cost inclusive of tariffs is quite big. So no, the margins are not the highest in North America.

Okay. So it will continue to be challenging. So I just wanted to confirm another thing about Page 9, I think. In your comments, Hosotani-san, for last fiscal year and the negatives from product mix was EDTs. Is this one-off? Or for electric dump trucks and its profitability, is it relatively low? I just wanted to confirm that point you made.

This is Hosotani speaking. Our dump trucks is because of our dump truck mix. Globally, we sell -- the regions where dump truck margins were high was Indonesia. For Indonesia, we have been selling rigid dump trucks mainly. And for electric dump trucks are being made in the U.S. on the other hand, compared to rigid dump trucks, the costs are greater due to its structure. And sales in Indonesia, especially for mining has been dropping off. So product mix-wise, rigid went down, whilst EDT composition has increased. So from a product mix point of view, because of more electric dump trucks, average margins have come down slightly.

I see. So we shouldn't be that concerned, I guess.

Correct.

Finally, I have a quick question on topics on Page 50, you talked about AHSs and reaching 1,000 units in volume. I think that's great. Going forward, do you have any numerical targets as to how to grow the business even more? That's my final question.

Well, in the strategic growth plan and our targets, it was 1,000 units in fiscal '27. That was our original target, but we have been able to reach it beforehand. So we have been -- we are thinking about raising the target up to 1,200 units instead. So compared to the pace we saw back in fiscal '25, it looks like it's going to decelerate. However, new customer implementation is likely to increase. And in that case, the rate of increases is going to look like it's decelerating, but we will continue to work on its implementation.

How about margins? Compared to rigid dump trucks, is it lower?

Well, we talked about electric dump trucks earlier. So that in itself is not that high, but this is an AHS system, and we receive income from subscriptions as well. So that is a positive.

We are counting down some time. Anyone who has questions here? Okay. I'd like to take a final question from the floor.

Narita from Mizuho Securities. Sorry, I'm repeating myself, but Page 28, here in Indonesia, mining equipment demand doesn't look like it's declining so much. And yes, I do understand that there is a declining market, but the Chinese manufacturers try to make inroads into mining equipment more and more. And against the hard work in Latin America, the Indonesia and those smaller kinds of smaller dumps were utilized in those Indonesia. So other than the market, there have been anything that you can share other than the competitive landscape?

And also, you said Indonesia, it has the highest margin, whereas coal prices will give you the headwind. And that might be changing in the future, but with your self-effort, do you see any capacity to increase further overall performance in Indonesia?

Well, as you see the bottom right, Page 28, you see the demand trend, and that might be misleading, but you see by sector here. So in terms of the size, the smaller equipment for mining are included here. And then fiscal year '25, we are shipping a lot of those smaller ones and 100 tons demand is on a decline. So that sounds like that doesn't add up. But the demand for 100 tons, the customer try to hold back the purchase. That's why we are struggling. And fiscal year '26, the coal production volume is going to be struggling, but we work with the distributors to secure enough volume here.

So finally, Tai-san from Daiwa Securities, we would like to take your question remotely.

Yes, I'll keep my question brief. I have a question for Imayoshi-san. With respect to the Middle East and tariffs, that was the main topic for today's call. Even if you add back those numbers into your guidance, profitability is expected to be about the same as last year or a little bit down, whether it be on a company-wide basis or for the C&ME segment. And I think it all comes down to inflation, maybe. But how about striving to raise profitability by making up for it? Do you have that intention? Or are you fine with this kind of margin? And would you like to instead raise top line? Because you have just started a new fiscal year. So Imayoshi-san, of course, can you talk about some themes that you're considering as a company? Of course, countermeasures for the Middle Eastern conflict may be one, but I was hoping that you could share 1 or 2 things on your mind.

Well, as stated in the strategic growth plan, we want to have profitability and growth rates that exceed industry levels. So it's not just about growing top line, but also profitability as well. Overall, demand-wise, we are at a juncture where it's broadly flat. It's not just tariffs impact, but Indonesia's drop-off is also a negative when it comes to profitability, but we will steadily implement the measures that we're stating in the strategic growth plan. We will work on product development as well as we'll think about ways to grow the aftermarket business. So we would like to ensure that we're able to generate results so that we can also enhance profitability.

Thank you very much. This concludes the Q&A session.

So this is Horikoshi, CFO. I'd like to share with you the financial results for the third quarter of FY 2025.

So Page -- Slide 4, this is a summary of the 3-months period of the third quarter FY 2025. The FX rate were JPY 152.8 per U.S. dollar, JPY 177.5 per euro, and JPY 100.2 per Aussie dollar. Compared to this year-on-year, the yen depreciated from the previous year. And also the sales increased and the OP increased by -- net sales increased 3.5% to JPY 1.02 trillion. OP decreased by 12.7% to JPY 142 billion. Operating income ratio declined by 2.5 points to 13.9%. Net income decreased by 13.1% year-on-year to JPY 94.1 billion.

Slide 5 shows sales and profit by segment for the third quarter. Sales in the Construction, Mining & Utility Equipment business increased by 3% year-on-year to JPY 945.8 billion. Segment profit decreased by 17.9% to JPY 120.7 billion. The segment profit ratio declined by 3.2 points to 12.8%. In Retail Finance, revenues increased by 6.2% year-on-year to JPY 32.1 billion and segment profit increased by 29.9% to JPY 9.1 billion. Sales in the Industrial Machinery & Others business increased by 11.8% year-on-year to JPY 55.8 billion, and segment profit increased by 47.7% to JPY 10.7 billion. I will explain the factors behind these changes later.

Slide 6 shows sales by region for the Construction, Mining & Utility Equipment business for the 3 months period. Sales in this segment increased by 3% year-on-year to JPY 943.2 billion. While sales decreased in Asia, mainly due to sluggish demand for both mining and general construction equipment in Indonesia, sales increased in Latin America, Europe and Africa. On a constant currency basis, sales remained flat year-on-year.

Slide 7 provides a summary for the 9 months period of FY 2025. The FX rates were JPY 148.5 to the dollar, JPY 170.4 to the euro and JPY 96.3 for the Australian dollar. Compared to the same period last year, the yen appreciated against the U.S. dollar and the Australian dollar, however, depreciated against the euro. Net sales decreased by 1.4% year-on-year to JPY 2.915 trillion. Operating income decreased by 10.1% to JPY 419 billion. The operating income ratio declined by 1.4 points to 14.4%. Net income decreased by 13% year-on-year to JPY 269.8 billion.

Slide 8 shows sales and profit by segment for the 9 months period. Sales in the Construction, Mining & Utility Equipment business decreased by 2.2% year-on-year to JPY 2.688 trillion. Segment profit decreased by 14.7% to JPY 362.6 billion. The segment profit ratio declined by 2 percentage points to 13.5%. In Retail Finance, revenues increased by 1.1% year-on-year to JPY 93.1 billion. Segment profit increased by 19.1% to JPY 26 billion. Sales in the Industrial Machinery & Others business increased by 10.9% year-on-year to JPY 162.7 billion. Segment profit increased by 81.1% to JPY 27.3 billion. I will explain the factors behind these changes later.

Slide 9 shows sales by region for the Construction, Mining & Utility Equipment business for the 9 months period. Sales in this segment decreased by 2.2% year-on-year to JPY 2.6805 trillion. Although sales decreased in Asia, North America and Japan, sales increased in Latin America, Europe and Africa. On a constant currency basis, sales decreased by 0.6% year-on-year.

Slide 10 details the factors affecting sales and segment profit in the Construction, Mining & Utility Equipment business for the 9 months period. Regarding sales, the positive impact of improved selling prices was outweighed by the negative impacts of the yen's appreciation and reduced volume, resulting in a decrease of JPY 60.4 billion year-on-year. As for segment profit, despite the positive impact of improved selling prices, it was outweighed by the negative impact of the yen's appreciation and reduced volume and increased costs, resulting in a decrease of JPY 62.3 billion year-on-year.

Slide 11 shows the result of Retail Finance for the 9 months period. Assets increased compared to the previous fiscal year-end, driven by increase in new contracts and the depreciation of the yen at the end of the period. New contracts increased year-on-year, mainly due to increased finance penetration. Revenues increased by JPY 1 billion year-on-year, primarily due to the increase in outstanding receivables. Segment profit increased by JPY 4.2 billion year-on-year, mainly due to lower funding costs.

Slide 12 shows sales and segment profit for the Industrial Machinery & Others segment for the 9 months period. Sales increased by 10.9% year-on-year to JPY 162.7 billion. Segment profit increased by 81.1% year-on-year to JPY 27.3 billion. The segment profit ratio rose by 6.5 points to 16.8%. Sales and profits increased due to higher sales of larger press for the automotive industry and increased maintenance sales for high-margin excimer lasers for the semiconductor industry.

Slide 13 shows the consolidated balance sheet. Total assets stood at JPY 6.3079 trillion, an increase of JPY 534.4 billion from the previous fiscal year-end, mainly due to the yen's depreciation at the end of the period. Inventories were JPY 1.6896 trillion, an increase of JPY 282.9 billion from the previous fiscal year-end due to the impact of the yen's depreciation as well as U.S. tariffs. The shareholders' equity ratio decreased by 1.7 points from the previous fiscal year-end to 53.3%. The net debt-to-equity ratio was 0.30.

Regarding the share buyback result, at the Board of Directors meeting on April 28, 2025, we completed the acquisition of the maximum amount of JPY 100 billion by November 28, 2025. We canceled all of the 20,612,500 shares acquired this time on December 29, 2025. This corresponds to 2.2% of the total outstanding shares before cancellation.

Free cash flow for the 9 months period of FY 2025 was a positive JPY 115.7 billion. This concludes my presentation. Next, the projection for fiscal '25 will be explained by Mr. Hishinuma.

This is Hishinuma, GM of the Business Coordination Department. From here, I'll explain the projection for fiscal '25 business results and the conditions in the major markets.

Page 15 shows an overview of the projection for fiscal '25 business results. The full year outlook remains unchanged from the October projection.

From Page 16, I'll explain the demand trends and projection for the 7 major products. Demand for the 7 major products includes mining equipment. The figures for the fiscal '25 Q3 are preliminary estimates by the company. Demand in fiscal '25 Q3 appears to have increased by 3% year-on-year. The full year demand outlook for fiscal '25 is set at 0% to minus 5% year-on-year, which is unchanged from the October projection.

Page 17 shows the demand trends and outlook for the North American market. Demand in the fiscal -- demand in fiscal '25 appears to have increased by 1% year-on-year. Demand for infrastructure and energy remained steady. The demand projection for fiscal 2025 is 0% to minus 5% year-on-year, which is unchanged from the October projection. As in the first half, there was no downward pressure on demand from tariffs during the third quarter apparently. However, as cost increase due to tariffs gradually progress, we will closely monitor its impact on demand.

Page 18 shows the demand trends and projections for the European market. Demand in fiscal '25 Q3 appears to have increased by 7% year-on-year. The projection for fiscal 2025 is at the same level as the previous year, unchanged from the October projections. In Europe, an improvement in the business climate has been observed, including upward revisions to GDP growth rates. And with infrastructure investment plans in various countries, demand has remained firm. However, we will continue to closely watch market future conditions.

Page 19 shows the demand trends and outlook for the Southeast Asian market. Demand in fiscal '25 Q3 appears to have decreased by 6% year-on-year. As the decline in demand through the third quarter was smaller than expected as of October, the demand projection for fiscal 2025 has been revised to 0% to minus 5%. In Indonesia, demand for mining equipment declined significantly from the second quarter onward due to falling coal prices. In addition, reductions in public works budgets have continued and demand for construction equipment remains sluggish. Uncertainty remains high. And while distributor inventory adjustments are underway, a recovery in demand is not yet in sight.

Page 20 shows the demand trends and outlook for the Japanese market. Demand in fiscal ' 25 Q3 appears to have decreased by 14% year-on-year. The projection for demand in fiscal '25 is minus 10% to minus 15%, unchanged from the October projections. Low utilization of rental equipment, labor shortages and rising material prices continue and no signs of demand recovery are being observed.

Page 21 shows trends and projections for major mineral prices related to demand for mining equipment. We expect prices for low-grade coal in Indonesia to remain depressed, while prices for other minerals are remaining high or moving steadily.

Page 22 shows demand trends for mining equipment. Demand in fiscal '25 Q3 appears to have decreased by 21% year-on-year. Coal prices declined in Indonesia, leading to a significant decrease in demand for equipment. The demand projection for fiscal 2025 is minus 10% to minus 15%, unchanged from the October projections. Coal prices in Indonesia have not recovered and demand has not rebounded. However, demand for equipment in other regions and for other minerals is expected to remain generally at high levels towards the fiscal year-end.

Page 23 shows sales of mining equipment. Sales in fiscal '25 Q3 increased by 4.9% year-on-year to JPY 475.1 billion. Excluding FX impact, sales increased by 2%. Although sales declined in Asia, mainly Indonesia and in North America, increases in Latin America and Africa resulted in overall year-on-year growth.

Page 24 shows the projected sales of equipment, parts and services and related items in the Construction, Mining & Utility Equipment segment. Parts sales in Q3 of fiscal '25 increased by 6.1% year-on-year to JPY 265.5 billion. Including services and others, the aftermarket accounted for 54%. And excluding FX impact, total aftermarket sales increased by 3.8% year-on-year.

This concludes my explanation. Thank you.

We would now like to receive questions from you. [Operator Instructions] The first question, please. UBS Securities, Sasaki-san.

So this is Sasaki from UBS Securities. I have 2 questions. First question relates to the Q3 results. So I'd like you to do a recap on the Q3. So it has been progressing well vis-a-vis plan, especially in terms of sales and operating income, in terms of volume and also the selling price and FX inclusive. So what has been positive? And what were not as expected vis-a-vis plan? If you can give us a recap, that would be helpful.

So this is Horikoshi. In terms of sales, JPY 145 was the expectation, but in actual JPY 153. So about JPY 71 billion or so of an excess that we have seen because of FX.

In terms of volume, it's about JPY 5 billion short vis-a-vis plan. Also for the price differential, it's about JPY 3 billion short of our plan. So about JPY 63 billion in comparison to October PA, we have exceeded the initial expectation in comparison to October. So we mentioned in terms of volume that was short by JPY 5 billion. So in the construction, that was short by JPY 7 billion. And in terms of mining, JPY 2 billion of excess. So that is the breakdown. So in terms of construction, the breakdown for what was short. So in North America, JPY 5 billion is the shortage in North America. This relates to repair. So because of the constraints of the customers' budget, it has been pushed out. So that is why the number is short in North America.

Also, the competitors have been quite aggressive, especially in the month of December. So this was prior to the price increase. So they have been quite aggressive. So that is why we had seen a negative impact.

Also in terms of Indonesia and Asia, so actually, it was better than our initial plan. So where we have seen shortage, that was Japan. So in comparison to October announcement, it was worse. So if you were to net out all these factors, it's JPY 7 billion of short in terms of the construction equipment.

Moving on to mining business. North America, we have seen a similar number in North America that was short vis-a-vis plan. This is specifically related to oil sand in Canada because of the constraints in budget, therefore, the service provision was pushed out. So that was one of the factors.

Where was it positive, favorable, was Indonesia. It was better than our initial anticipation. The reasons why Indonesia was performing better than expected. First of all, in Sumatra, the island, there has been a huge -- the torrential rain, and there were some demand related to restoration. And because of that, there was a demand for construction equipment. Also, the coal prices, and that is the thermal, the coal, that is, the pricing wasn't as bad as initially expected. Therefore, Indonesia, it was actually excess in comparison to our plan.

Oceania and also South Africa has been quite solid. So on a net basis, the mining business was in excess about JPY 2 billion or so.

Now moving on to the PL. In terms of profit, so in terms of FX, the profit was a push up by JPY 20 billion. Also in terms of the volume, so vis-a-vis sales of JPY 5 billion in terms of profit was short by JPY 2 billion. Also, in terms of the selling price, that was a negative factor. And also for fixed cost, we have some excess in the fixed costs and others. So all in all, so we mentioned about FX differential was JPY 20 billion, and that amount in entirety, we were able to see an excess. So we were able to offset that. Did I answer your question?

Thank you very much. So in terms of fixed cost, that was a positive of JPY 5 billion. So FX was JPY 20 billion then. Is my understanding correct? So of course, the production cost was a negative. Why do you see an excess in the fixed cost?

So the budget execution was pushed out to Q4.

Understood. So based on that, my second question, you mentioned about the situation in Indonesia. So I was able to understand why it was better than expected. When it relates to construction equipment and mining equipment, what is the expectation? And what is the current state of Indonesia? If you can also share with us your outlook for Indonesia.

So this is Hishinuma. From the perspective of demand, the situation has not dramatically changed. However, after Q2 is over, in comparison to the demand outlook, it was somewhat better than our forecast at the end of Q2. And the reason is just as we have explained.

So at the end of Q2, mining was expected to be not so favorable because the coal prices weren't faring. But Q2, it was about $42 to $43 or so. And in Q3, it was back to $45 or $46. So we have seen a push up because of that. And that is why Q4, we expect this positive trend to continue.

And for construction equipment, for the public spending, the budget constraints hasn't changed. And therefore, the situation had not really changed from before. Now the expectations from Q4, it may actually deteriorate from the previous year. That was our initial forecast. But in terms of the holidays, it was end of March last year. But this year, it's about a week or 10 days more holidays in comparison to last year. So we have incorporated the maximum risk. But overall, we do not expect the situation to change so much.

I was able to fully understand. Sorry, this is an additional question. I fully understand the situation in Indonesia. So already, the situation is not so favorable, but it appears as if it is stabilizing. Are there any risks that Indonesia may deteriorate further? So it was pretty, I know, not-so-good situation, but what are the risks that actually further deteriorate?

That relates to next fiscal term then. So we are trying to revisit these plans. But as for next fiscal term, construction equipment shouldn't be so bad because in the recent months, it is somewhat getting stronger. So Indonesia is the area that we may see some decline. Given the current coke price, chances are we may see a decline in Indonesia for next fiscal term as well.

So this fiscal term, it is pretty bad then. So the deterioration in Indonesia, could we expect the impact will be smaller from Indonesia? Apologies for going on.

I don't know. We don't know.

Let's move on to the next question. Maekawa-san from Nomura Securities, please.

This is Maekawa from Nomura Securities. I also have 2 questions. I have a question about overall mining. Regarding our demand outlook, we haven't really changed the overall picture. But for parts and services, have you been seeing demand pick up? And for equipment demand, there may be a chance that it's going to pick up due to investment plans. So based off the current market, can you share with us how you view mining equipment demand going forward? And I think this will cover next fiscal year as well, presumably.

Well, regarding that question, actually, we are right in the middle of formulating our business plan for next fiscal year.

So that -- it may be subject to change, but just to give you a feel of what we are thinking about right now. First of all, regarding minerals or commodities, for nickel and thermal coal, it is in a situation of excess supply. Due to a decline of demand in China, the prices are weak. And also for nickel, the greatest producer is Indonesia and production has been in excess.

For mining equipment, since 2021, it has been expanding, but it has been reaching peak this year. And for next fiscal year, demand is expected to be flat. And we believe it's going to be shifting from greenfield to brownfield when it comes to investments. Our customer financials are sound, but due to inflation, costs have been increasing and mineral grade has been going down as well as the way to mine has become more complicated. Therefore, I think we have to be cautious in investments. So we believe the demand for rebuilds will become higher in aftermarket.

For Africa, Middle East, Central Asia and emerging mining regions, we do believe mining developments will proceed. And like we announced Reko Diq in Pakistan have been new opportunities that have been presented to us. And for Indonesia, I talked about it earlier.

How about coal -- copper? I think the demand is high in Latin America. So how should we expect future activity?

Next fiscal year, as of now, our thinking is demand is expected to decline in Australia this year. It was a peak year for replacement demand. That's what we thought. So demand is likely to decline next year. And we also expect Indonesia to go down as well, but we believe it will be brisk conditions in other regions.

Another question I have for you is regarding tariffs and increases in selling prices as well as its impact and if there are any changes there. Just wanted to check with you. The 9-month basis, Q3 results, JPY 25.1 billion was the tariff impact. I think that was in line with plan. And for this fiscal year, you haven't changed your outlook, but you're expecting JPY 55 billion. And for next fiscal year, 30 times 4 is JPY 120 billion. Has that expectation changed?

And regarding selling prices, I think you're already working on it. But are you thinking about additional price increases? And are you expecting any impact on demand? Or have you been seeing any impact on demand? So those are the 3 things I would like to know.

This is Horikoshi again. Regarding tariff-related costs, including mitigation measures, we said JPY 55 billion as of October, but we do believe our projections were quite accurate. So far, things have been developing in line with our expectations, and we follow the numbers on a monthly basis as to how it's hitting our P&L.

For next fiscal year, we said as of October that it's going to be Q4 times 4x. That should be the expectation, which is around JPY 120 billion.

For selling price increases, in August, we did a selling price increase or starting from August orders, that is. And we also have been increasing prices from January orders as well. For our U.S. peers, starting from January, we have been hearing that they also have been raising prices. So the environment for raising prices is now becoming quite established, and we do believe we will be able to do further increases next fiscal year.

So because of that, are you expecting any last-minute demand? Do you think there's going to be some prebuys or any risk that it's going to drop off after you raise your prices?

In the case of our company, we did a campaign in October and in November, it went down, but it went up again in December. So no, we are not feeling such trends.

We would now like to move on to the next question from Goldman Sachs Securities. Adachi-san, please.

This is Adachi from Goldman Sachs. So I also have 2 questions. First question, which is somewhat related to the previous ones relates to mining and the exposure to the metals and the precious metals.

So I think Latin America and Africa, I believe it was better than expected. So the exposure to the copper and gold is quite high in those regions. So you had the backlog and it was realized as planned. Was that the case? Or were there more of a short-term aftermarket rebuild demand has increased. So what is the current state in terms of Africa and Latin America? So how has the demand changed in terms of exposure to gold and others?

Within the analysis, we talked about the comparison with the October announcement. Africa was favorable. Last year, Anglo had conducted the business restructuring. So they have restrained from the investment. So it could be a reactionary the response to that. So South Africa was positive from the previous year and also in comparison to the October announcement.

Also another point, the gold prices continues to rise. So we have large projects such as in Ghana. So we hear that a number of new projects are underway.

So in terms of the Q3 order intake, perhaps you haven't disclosed much, but how was the situation of order intake?

It has been quite positive, very brisk.

My second question relates to cost. So the cost was higher than initially expected, but tariffs was in line. So I would imagine that the non-tariff-related cost was higher than initially expected. So if you can give us more details on the production cost, please.

In terms of the steel prices in comparison to last year, it has come down. So we have seen some gains from that. But in terms of the production guarantee basis, there was some one-off cost. Also tires and power lines. So nonferrous metals. So these are non-steel, the parts, actually, the prices have risen from the previous year. So we have actually incurred some loss related to those nonferrous metals.

So excluding those one-off factors then, is inflation pretty much in line with your expectation? Or even excluding those, was the price increase not in line with your expectation?

If you were to exclude the one-off, we have seen the gains as expected.

Let's move on to the next one. From Nikkei, Mr. Otake -- Ms. Otake, excuse me.

This is Otake from Nikkei. Earlier, there was a question asked and my question may overlap somewhat. But the first question is about the circumstances in North America. Can you talk about now and your projection related to construction equipment and mining equipment? Can you talk about each, respectively?

This is Hishinuma speaking. So first, regarding North America, relatively brisk conditions are continuing. When we were setting forth this fiscal year's projection, we were saying minus 5% to minus 10%. But since Q2 onwards, we've revised it up to 0% to minus 5%. And it was plus 1% for Q3. And therefore, we do believe that it has been quite steady.

And we are aligning with the local people to capture the numbers, but we are not seeing any factors that will make our numbers change dramatically. So that's for construction equipment. For mining equipment, last year was quite good. So this year, we're guiding negatively, but it's not because the economy is bad, so we are not that worried.

You talked about Canada earlier. For mining, in next fiscal year, are you expecting further decline? Or are you not feeling such risks?

Correct. We are not expecting such risks.

And secondly, my question is about price increases. You said that competition has been raising prices from January and the market is accepting higher prices. According to -- regarding that point, for selling price increases that are going to probably be ongoing, how much do you believe that will boost your profits? Can you give us some direction or a feel of how much that's going to look like?

Well, at our October results briefing, I mentioned this in an interview, but the magnitude that we are experiencing now is what we are striving for next fiscal year as well.

That means around JPY 83 billion is the positive impact on profits, no?

Well, JPY 3 billion might be a little extra, but we are striving for similar levels at this fiscal year, which means around JPY 80 billion. I am not definitively saying JPY 80 billion, but I have been saying that about the same level as this fiscal year.

My third question is, as you mentioned in the beginning, for Q3 compared to your plan, it has been exceeding and trending positively, and there has been some areas where you've been beating your profit expectations. When you look at the FX rates for the second half of the year, we are seeing the yen weaken. So I think there is sufficient opportunity for you to exceed your expectations for the full year. But what are the chances of that happening? What is your feel?

For Q3, we talked about JPY 20 billion of positive impact coming from FX. And for -- when you net it out, it's 0. But I was saying we can exceed JPY 20 billion. But for Q4, due to fixed costs, there have been some pushouts or that's what we're expecting at least. Therefore, on a full year basis, we expect we're going to be under our expectation by JPY 10 billion. JPY 10 billion, meaning excluding FX impact. But FX-wise, we expect similar numbers to come through in Q4 as well.

I'd like to move on to the next question from Citigroup Securities, McDonald-san, please.

Slide 13, please. About free cash flow. There wasn't much comment on free cash flow today. So we've seen the yen depreciated and also the pushout in terms of mining. You've talked about those factors and also their impact from the tariffs.

So working capital appears to be somewhat deteriorating. So JPY 240 billion, the cash flow, that has been revised downwards in Q2, but it may be difficult to achieve on a full year basis. So what are your thoughts right now?

Last year, we had -- so about JPY 306 billion or so for last year. So cumulative last year was about JPY 150 billion cumulative up until Q3 for last year. So Q4 in 3 months, we had JPY 150 billion of free cash flow, leading to JPY 300 billion and JPY 157 billion for this year up until Q3. So if you see the similar -- the free cash flows within Q4, we could possibly reach that JPY 240 billion. Chances are we may actually reach that number. So I think it's the FX.

If yen continues to be so weak, it may be challenging to achieve this number, isn't it?

It doesn't necessarily relate.

Oh, it doesn't relate?

No.

So right now then, it was in the course of 3 years, the SGP on the cumulative basis, JPY 1 trillion, you should be able to achieve this?

We don't know yet. We don't know yet. Of course, we'll make the effort. But what we can say at this moment, if you look at the free cash flow numbers, so back in 2023, there's been a lot of fluctuation on the free cash flow. So I think 2023 was about JPY 240 billion or maybe I might be wrong, but that was the number. Last year was JPY 300 billion, and this year is JPY 240 billion for this year. So in comparison to the previous period, it has become more stable in terms of generation of free cash flows. So we still have 2 years to go until the end of the SGP. So we'd like to work hard to achieve that number.

So of course, shareholders' return. So you have JPY 100 billion of share buybacks has been completed and you have retired the other shares. Of course, I fully understand nothing is decided for next fiscal year, but institutional investors see that there's a lot of cash piling up. And perhaps there is not much need of CapEx, for instance, construction of new plants. We do appreciate there is a demand in investment related to replacement of renewal. But unless there is a large-scale M&A, can we expect to see similar amount of shareholders' return?

That's a comment?

Yes, that is a comment.

Horikoshi-san, I'm pretty sure it is hard for you to say that. Yes, we heard your comment.

Also to a different note. So you mentioned the profit was slightly better than the plan. So my impressions are -- so industrial machinery and retail finance was positive. That was my impression. But there's a discussion related to best owner.

But aside from that, in terms of industrial machinery, that is Gigaphoton continues to be in good shape. And the profitability as well as the top line is improving. So chances are this situation may continue for some time. What are your thoughts, Horikoshi-san?

As you know, the semiconductor demand continues to be on the rise, and that is expected. Also, the Komatsu, the NTC, Komatsu Industries continues to be quite solid. So fortunately, on a total basis, the profitability is higher than the construction equipment. And Gigaphoton, we expect growth next year onwards. So we do expect that to happen for next year. So the sales on a cumulative basis, about JPY 50 billion or so.

So there are some comments related to maintenance. So how much does that actually account for within the sales right now?

We don't have the number at hand. But as far as this fiscal term is concerned, about half relates to maintenance and the half is related to the equipment.

So just to confirm then, Gigaphoton's profitability is far superior to average. So I have this image that it's over 20%. Is that correct?

Yes, your impressions are correct.

Moving on to the next question. Taninaka-san from SMBC Nikko.

This is Taninaka from SMBC Nikko. I have 2 questions. The first one is about increasing selling prices, passing on the cost. The ones you have announced regarding the ones that are effective from January, inclusive of that, you didn't say JPY 80 billion definitively, but there was some conversation around increasing prices by the same magnitude next fiscal year.

I think the cost increase expected for next year is about JPY 65 billion. But how much of the profit decline are you expecting to offset next fiscal year? Can you give us some food for thought?

Regarding tariff impact, it's actually the difference between JPY 120 billion and JPY 55 billion. So yes, you are correct. But selling price increases, like mentioned earlier, is what we are striving to do. So you will be able to come up with the percentage if you do your math.

Secondly, for precious metals, prices are going up. And after service for the mining business, how has that been changing? Because copper prices are increasing, are there any situations where people are not able to develop new mines? Or is production stopping at any copper mines because of this backdrop?

So is utilization -- I guess utilization is not really picking up. But due to higher precious metal prices, is that directly affecting your aftermarket business? Or is it because precious metal prices are going up due to a variety of factors, there's no direct relationship. Can you give us some perspective on this?

Well, please look at Page 38 in the disclosed presentation. It breaks down the sales of equipment and parts and services. For FX, if you exclude FX impact, for the third quarter as well on a cumulative basis, too, for equipment compared to last year, the difference was quite negative and it went down. However, for parts and services, actually, we've been exceeding. So on a net-net basis, compared to last year, we have been seeing a decline in sales or that's what we're expecting projection-wise.

So the aftermarket business compared to last year has been steadily rising, and the ratios are shown at the top. But for this fiscal year, we expect the aftermarket ratio for mining is going to reach around 65%. So yes, we perceive that the business is doing well. And even for precious metals, the same thing applies.

The next question, please. From Nikkei, Kugai-san, please.

This is Kugai from Nikkei. I'd like to pose 2 questions. First relates to rare earth. So the export control by China is in place. So what are the impacts right now? And what are the expectations? So in terms of export control, what is the current state of inventory? And what is the procurement strategy going forward? If you can share with us your thoughts, that would be helpful.

So this is Hishinuma. Internally, we are definitely investigating the details. So we're looking at the suppliers' inventory level. And if there is a shortage, we're trying to source from elsewhere. So those are definitely activities underway. So of course, if there is a complete suspension, the impact will be quite huge. So we are cautiously involved in the discussion and the investigation.

Also, I have another question. So weaker yen is prolonging. So that is posing some positive impact in terms of the performance. But of course, if this is prolonged, that may impact the investment overseas. So with the yen depreciation, how do you perceive the current state?

Also, what is the optimal, the FX level for you? If you can share with us your thoughts on what is the optimal level, that would be helpful as well.

So just to do a recap. It's been over 2 years, actually, we're trending about JPY 150 or so. So the yen depreciation started back in Q1 of 2022. And since then, there has been gradually rise or depreciated. And since 2 years back, it's been hovering around JPY 150 or so. So I think back in 2017 to 2021, it was JPY 120 to JPY 115 or so. That was the past trend. So for 2 years, we've had JPY 150. It is almost becoming a de facto as we consider the future investment.

So if we -- so it is not possible for us to invest more, expecting that the yen would appreciate going forward. So basically, the basic stance is, wherever needed, we will make such investment.

Thank you. We are running out of time. But there are no people who have raised their hands. So if there are no additional questions, we would like to conclude today's meeting. Any additional questions?

McDonald-san, you have one more question?

Yes, it's a short one. Regarding your P&L analysis for the volume, product mix, et cetera, can you give me -- give us pure volume, product mix, area mix and so forth and the details of that?

Are you talking about Page 10 on a 3-month basis, right? Out of volume, product mix, it's JPY 520.1 billion. The pure volume negative is JPY 27.6 billion. For product and area mix, it's JPY 21.2 billion in total, combining the two. And the third item is a one-off item, which is related to product guarantee, which was worth JPY 3.3 billion. For area and product mix, JPY 21.2 billion of a loss.

For area mix, Indonesia compared to last year has been going down and therefore, has been deteriorating. And for Europe, it has been increasing. But year-over-year, it is contributing negatively.

For product mix, due to mining, and this applies to construction equipment as well. Due to the mix between equipment and parts, it has led to a negative impact for this period.

As we reached the time given, we would like to end Komatsu's fiscal '25 Q3 results briefing. Thank you very much, everyone, for joining today.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

This is Horikoshi, the CFO. I'll explain the overview of Komatsu's business results for fiscal '25 Q2.

Page 4 shows highlights for the 3 months ended September 30, 2025. Exchange rates were JPY 147.3 to the USD, JPY 171.3 to the euro and JPY 96 to the Australian dollar. Compared with the same period last year, the yen appreciated against the dollar and Australian dollar, while depreciating against the euro. Net sales decreased by 2.6% year-on-year to JPY 982.1 billion. Operating income decreased by 6.7% to JPY 136.7 billion. The operating income ratio was 13.9%, down 0.6 percentage points from the previous year. Net income attributable to Komatsu Limited decreased by 8.1% year-on-year to JPY 84.5 billion.

Page 5 presents the sales and segment profit of each business segment for Q2 on a 3-month basis for fiscal '25. In the Construction, Mining & Utility Equipment segment, net sales decreased by 4.1% year-on-year to JPY 897.3 billion, while segment profit decreased by 11.8% to JPY 119.7 billion. The segment profit ratio declined by 1.2 points to 13.3%. The Retail Finance segment recorded net sales of JPY 30.5 billion, down 2.5% year-on-year, while segment profit increased by 4.9% to JPY 7.5 billion. The Industrial Machinery & Other segment achieved net sales of JPY 63.5 billion, up 23.9% year-on-year, and segment profit increased approximately 3.3x to JPY 9.4 billion. I will explain the factors behind these changes in each segment later.

Page 6 presents sales by region for the Construction, Mining & Utility Equipment segment in the second quarter of fiscal '25. Net sales in the Construction, Mining & Utility Equipment segment decreased by 4.1% year-on-year to JPY 895 billion. In Asia, both mining and construction equipment sales declined due to falling coal prices and reduced public investment in Indonesia, although sales increased in Latin America, Africa and the Middle East on an underlying basis, excluding foreign exchange rate impact, total sales decreased by 1.6% year-on-year.

Page 7 presents the highlights for the first 6 months from April to September of fiscal '25. Exchange rates were JPY 146.4 to the U.S. dollar, JPY 166.9 to the euro and JPY 94.3 to the Australian dollar. Compared to the same period last year, the yen appreciated against the U.S. dollar and Australian dollar, while depreciating against the euro. Net sales decreased by 3.9% year-on-year to JPY 1,891.6 billion, and operating income decreased by 8.7% to JPY 277.1 billion. The operating income ratio declined by 0.8 percentage points to 14.6%. Net income attributable to Komatsu Limited decreased by 12.9% year-on-year to JPY 175.7 billion.

Page 8 shows the sales and profit by segment for the first half of fiscal year 2025. Sales of the Construction, Mining and Utility Equipment segment decreased by 4.8% year-on-year to JPY 1,742.2 billion, and segment profit decreased by 13% to JPY 242 billion. The segment profit ratio declined by 1.3 percentage points to 13.9%. Sales of the Retail Finance segment decreased by 1.3% year-on-year to JPY 61 billion, while segment profit increased by 13.9% to JPY 16.9 billion. Sales of the Industrial Machinery & Other segment increased by 10.5% year-on-year to JPY 106.9 billion, and segment profit rose approximately 2.1x year-on-year to JPY 16.6 billion. The factors behind the increase and decreases in each segment will be explained later.

Page 9 presents sales by region for the Construction, Mining & Utility Equipment segment in the first half of fiscal '25. Net sales in the segment decreased by 4.8% year-on-year to JPY 1,737.2 billion. While sales increased in Europe, Africa and the Middle East, it declined in Asia, particularly in Indonesia as well as in North America and in Japan. Excluding the impact of FX, sales decreased by 0.8% year-on-year on an underlying basis.

Page 10 shows the factors behind changes in sales and segment profit for the Construction, Mining and Utility Equipment segment in the first half of fiscal '25. Although improved selling prices had a positive effect, the negative impact of FX and lower sales volume outweighed it resulted in JPY 88 billion year-on-year decrease in net sales. Despite the positive effect of higher selling prices, the negative effects of FX, reduced volume and higher cost predominated, leading to a JPY 36 billion year-on-year decrease in segment profit. The impact of tariffs for the first half, including mitigation measures was JPY 7.7 billion. The segment profit ratio declined by 1.3 percentage points year-on-year to 13.9%.

Page 11 presents the results for the Retail Finance segment in the first half of fiscal '25. Assets increased from the end of the previous fiscal year as new contract volume exceeded collections. However, new contract volume decreased year-on-year, mainly due to FX impact. Net sales decreased by JPY 0.8 billion year-on-year, mainly due to FX impact, while segment profit increased by JPY 2.1 billion year-on-year, primarily owing to lower funding costs.

Page 12 presents sales and profit segment profit for the Industrial Machinery & Other segment in the first half of fiscal '25. Net sales increased by 10.5% year-on-year to JPY 106.9 billion. Segment profit was approximately 2.1x higher than the previous year at JPY 16.6 billion, and the segment profit ratio rose by 7.4 percentage points to 15.5%. The increase in both sales and profit was driven by higher sales of large presses for the automotive industry and increased maintenance revenue from high-margin excimer lasers for the semiconductor industry.

Page 13 presents the consolidated balance sheet. Total assets amounted to JPY 5,922.5 billion, up JPY 149 billion from the end of the previous fiscal year, mainly due to an increase in inventories. Inventories totaled JPY 1,579.4 billion, an increase of JPY 172.7 billion from the previous year-end. The shareholders' equity ratio declined by 0.7 percentage points from the previous year-end to 54.3%, and the net P/E ratio was 0.29x. Free cash flow for the first half of fiscal '25 was an inflow of JPY 33.5 billion, limited by an increase in working capital, primarily in inventories. That concludes my explanation.

Next, Hishinuma is going to explain fiscal 2025 business results projection.

This is Hishinuma, GM of Business Coordination Department. Now I'm going to explain the projection for fiscal 2025 business results and the major market overview. Page 15 presents outline of projection for fiscal 2025. So we have a revised -- our -- the full year projection. Net sales was revised upward by JPY 143 billion from the April 2025 projection and will decrease by 5.3% to JPY 3,888 billion from FY 2024. OP was revised upward by JPY 22 billion and will decrease by 23.9% to JPY 500 billion year-on-year. And net income is projected to decrease 27.2% to JPY 320 billion. It was revised upward by JPY 11 billion year-on-year. And there are partial changes to demand outlook, which I will touch upon later.

For Construction, Mining and Utility Equipment segment, against the April outlook due to the demand decline mainly in Indonesia, it is projected that there will be a negative impact on both sales and profit. Against that, we are going to partially absorb it by adding sales price improvement and the cost improvement from tariff mitigation measures. And foreign exchange of major currencies has been moving toward yen depreciation more than originally expected. So taking that into consideration, we have revised full year business result projection for fiscal 2025.

Regarding foreign exchange rates, since the third quarter, JPY 140 to USD 1, JPY 163 to EUR 1 and also JPY 91 to Australian dollar. And for the full year average FX, the JPY 143.2 to U.S. dollar, JPY 164.9 to euro and JPY 92.7 to Australian dollar. And the fiscal '25 ROE is projected to be 10.3% and the cash dividend per share, it is going to be the same as the previous year, JPY 190, which is unchanged from April outlook and consolidated payout ratio is projected to be 54%.

Page 16 presents the latest estimate of the impact of additional U.S. tariff incorporated into projection of business results revised this time. So based on the U.S. tariff policies and rates that have been disclosed as of October '24, the latest forecast for tariff the cost in fiscal '25 is as follows. This does not take into account the impact of additional tariff policy on China announced by U.S. government officials in October.

Payment basis is JPY 90 billion, which is a decrease of JPY 50 billion from the April '25 projection, including cost reduction measures implemented during the period. The impact of profit and loss is JPY 55 billion, which is an improvement of JPY 13.5 billion from the April fiscal '25 projection. So the actual impact on profit and loss, including cost reduction measures for the first half of the year was JPY 7.7 billion. The impact is expected to increase progressively towards the end of the fiscal year.

Page 17 presents projection of segment sales and profit for fiscal '25. Construction, Mining and Utility Equipment sales will decrease by 6% from fiscal '24 to JPY 3,571 billion, and the segment profit will decrease by 26.4% to JPY 441 billion. Retail Finance sales will decrease by 5% to JPY 117 billion, and the segment profit will increase by 0.3% to JPY 29.5 billion. Industrial Machinery and Others sales will increase by 6% from FY '24 to JPY 237 billion. Segment profit will increase by 20.5% to JPY 33 billion. I will touch upon reason for increase and decrease for each segment later.

Page 18 presents projection for sales by region for Construction, Mining and Utility Equipment. In Asia, coal prices in Indonesia continue to sluggish and it is expected that it will not recover for the time being, leading to a significant decline in sales for both mining and construction equipment. Profit is expected to increase in the Central and the South Asia, Europe and Asia due to FX impact, but it will decrease by 6% to JPY 3,559.6 billion in total year-on-year. So on the -- and the currency basis, excluding FX impact, it will decrease by 1 point year-on-year.

Page 19 presents Construction, Mining Utility Equipment. Causes of difference in projected sales and segment profit for FY 2025. Sales will decrease by JPY 227.2 billion from FY '24 despite the positive effects of increased selling prices due to the negative effects of foreign exchange rates and decreased volume of sales. Segment profit will decrease by JPY 157.9 billion from FY '24 despite the positive impact of the improved selling prices due to the negative impact from the factors such as exchange rates, decreased volume of sales and the increased cost, including the impact of U.S. tariff and the segment profit ratio will be 12.3%, down 3.5 points from FY '24.

So Page 20 represents retail finance projection. Assets will increase by JPY 42.2 billion from the previous fiscal year-end due to new investments exceeding recoveries. New contracts will decrease by JPY 45.7 billion from FY '24, mainly due to foreign exchange rates. And sales will decrease by JPY 6.2 billion from FY '24, mainly due to foreign exchange rate. And the segment profit will increase by JPY 0.1 billion from FY '24, mainly due to lower procurement cost and ROA will be 2.1%, 0.1 point down from the previous year.

Page 21 presents Industrial Machinery and Others projections. For the automotive industry, sales of large press will increase for the semiconductor industry, sales of the high-margin excimer laser maintenance will increase. Sales will increase by 6% to (sic) [ JPY 233 ] JPY 23.7 billion year-on-year and segment profit will increase by 20.5% to JPY 33 billion year-on-year.

From Page 22, I will explain actual and projection demand for 7 major products under the construction, mining and utility equipment. So demand for mining machinery is included into demand of the 7 unit -- major products. And the number of FY '25 Q2 are preliminary based on our estimate -- in the second quarter fiscal '25 demand increased by 1% year-on-year. This time, we have reviewed FY '25 full year forecast. As of April, taking into a direct impact of U.S. tariff to put demand downwards, we estimate the impact of 2.7% globally. So however, as of now, excluding some countries such as Brazil, we do not see clear tariff impact on demand. So for this outlook, we do not have a global figures. And for that reason, we do have the projection by region. Overall demand is 0.5% negative, which is same as the April projection. However, there is some fluctuation in regional demand. From next page onwards, I will touch upon each region.

Page 23 presents demand in North American market. In fiscal '25 second quarter, demand increased by 5% year-on-year. The impact of U.S. tariff policies on demand is unclear and rental demand, which has been struggling, this shows signs of reversal. In FY '25, full year demand will decrease by between 0% to 5% from FY '24. It will change from the April '25 projection. So during the first half, North American demand has been stable, but we will be closely monitoring the impact of the increased U.S. tariff costs on demand.

Page 24 presents demand in Europe. In fiscal '25 second quarter, demand increased by 1% year-on-year. And in fiscal 2025, the full year demand will remain about flat from FY '24, which was changed from the April '25 projection. Economy has been improved due to ECB interest rate cut and the fiscal expansion measures announcement and also demand hit the bottom. However, we will closely monitor the situation.

Page 25 presents demand in Southeast Asia. In fiscal '25 second quarter, demand decreased by 4% year-on-year. In fiscal '25, full year demand will decrease by between 5% to 10%, which is changed from the April '25 projection. In Indonesia, which is the biggest market, we see huge demand decrease for both mining and construction equipment due to oil price decline and public works budget cut. We do not expect demand in Indonesia to recover for the time being. So we are going to closely monitor the situation.

Page 26 presents demand in Japan market. In fiscal '25, the second quarter, demand decreased by 19% year-on-year. In FY 2025, full year demand will decrease by between 10% and 15% from fiscal '24, which was changed from the April '25 projection. Demand for rental is low and there is surplus in market population, which brings down the new machine demand. There are negative impact on construction industry due to the lack of manpower material price hike, demand will sluggish for the time being. However, we are going to closely monitor the situation.

Page 27 presents price trends and the projection for major minerals for mining equipment. So as for low-grade coal from Indonesia, its price is on downward trend, but other minerals price are expected to be high or stable.

Page 28 presents actual and projected demand for mining equipment. In fiscal '25, the second quarter, demand decreased by 13% year-on-year. Coal price dropped in Indonesia and demand has decreased significantly. In fiscal '25, full year demand will decrease by between 10% to 15% from FY '24, which was changed from the April '25 projection. We do not expect demand in Indonesia to recover for the time being. However, the demand elsewhere remains steady.

Page 29 presents actual and projected sales of mining. In fiscal '25 second quarter, sales decreased by 7.1% year-on-year to JPY 461.9 billion, excluding FX, the impact and sales decreased by 3.9%. In FY '25, full year sales will decrease by 7.5% from fiscal '24 to JPY 1,773.2 billion, excluding foreign exchange impact. Sales decreased by 1.6%. For mining equipment, Indonesia has dropped due to oil price drop, but excluding Indonesia against April outlook, sales increased excluding foreign exchange impact. So for mining equipment and services, in addition to decline in parts in Indonesia, we see customers work on cost reduction focused and it will decrease excluding foreign exchange against April outlook.

Page 30 presents Construction, Mining and Utility Equipment actual and projected sales of mining. In fiscal '25, the second quarter, parts sales decreased by 2.5% year-on-year to JPY 260.6 billion. And the ratio of aftermarket, including service was 53%, excluding foreign exchange, aftermarket sales increased by 0.4% year-on-year. FY 2025 parts sales will decrease by 4.8% year-on-year to JPY 1,001.1 billion and aftermarket ratio, including service is 52%. Excluding foreign exchange impact, the total aftermarket sales is -- will increase by 1.1% year-on-year.

So thank you very much. And now I would like to touch upon second quarter topics, starting from Page 47. Page 47. So Komatsu will establish a new training center in Cote d'Ivoire for construction equipment, mechanics and operators. This was announced at the 9 TICAD, which was held from 20th to 22nd August, and the completion is scheduled in 2026. So Komatsu aims to expand its function to include equipment stock and parts depot as well as marketing capabilities, positioning itself as the core facility for the West Africa, and it's going to be expanded to West African customers and distributors and local communities.

Page 48. Komatsu and U.S.-based Applied Intuition will co-develop a unified software-defined vehicle, which is SDV and autonomy platform. So with Applied Intuition's proven capabilities across vehicle operating system, autonomy stacks and tooling, Komatsu's extensive expertise in off-highway autonomy and mining applications. The collaboration represents signals a bold step toward the future of increasingly autonomous software-driven mining operations. By having autonomy platform leveraging SDV architecture, AI and the machine learning, the productivity of mining field can be dramatically improved, and we can provide higher values to the customers, including equipment downtime reduction and also the highly precise and efficient operation.

Page 49. Komatsu and its subsidiary, EARTHBRAIN have entered into a collaboration with TIER IV, a pioneer in open source software for autonomous driving to develop autonomous technology for construction equipment. [ Sister ] companies will -- the collaboration of all 3 companies will focus on autonomous operation, Komatsu articulated and rigid dump trucks for civil engineering and the quarry sites in Japan aiming for practice use by fiscal 2027.

Page 50. On September 19, Komatsu issued the integrated report, Komatsu Report 2025. So this report introduces our management policies and the corporate activities aimed at sustainable enhancement of corporate value over the mid- to long term with a focus on the new 3-year medium-term management plan renamed strategic growth plan with the title of "Driving value with ambition". Please take a look at it. That's it from myself.

Now from here on, we would like to take any questions that you may have.

This is Sasaki from UBS Securities. I have 2 questions. My first question is regarding numbers. Regarding volume, mix and cost impact, do you have a more detailed plans for this in the new plan, the revised plan compared to the beginning of the year plan. For volume and mix, it was revised down substantially by JPY 78.5 billion. But what was the reason, why it was revised down so substantially? That's my first question.

This is Horikoshi. Thank you for your question. First, looking at Page 10 and first half results for volume and mix, JPY 27.8 billion is what you see here. And for pure volume, it's JPY 19.3 billion. And other than that, for product or an area mix impact, it's JPY 6.4 billion, and it's likely to deteriorate. And there's one-off cost worth JPY 2.1 billion, which adds up to JPY 27.8 billion.

For area and product mix, the reason why it's deteriorating by JPY 6.4 billion, and it's about half and half of a breakdown. But for area mix, it's because of Indonesia and its sales has been falling and it's a high-margin market. And conversely, margins are not as good in Europe, but its mix contribution is increasing. That's the reason why area mix is deteriorating. For product mix, especially regarding mining equipment or the parts ratio has been falling. And out of equipment, the low-margin products have sold more in the first half of the year, which was also a negative factor. So that was the first half.

Regarding our expectations, looking at Page 19. On a year-over-year basis, JPY 82.8 billion is the negative impact from volume and product mix, et cetera. Pure volume impact is minus JPY 40.8 billion. Product mix, area mix are going to be -- in total, JPY 36.5 billion negative and also one-off costs, JPY 5.4 billion, which adds up to JPY 82.8 billion. For product and area mix, which is a large number, the reason is attributed to the same reasons as the first half and is likely to expand. And compared to the April PA, the public announcement, we're talking about our projection on an annual basis, right? On an annual basis.

Compared to the difference between the public announcement in April for sales, it's about JPY 130 billion of a difference. It's worse by JPY 130 billion, out of which FX is better. Second half assumptions are now JPY 140. So it's a positive factor by JPY 220 billion. But conversely, for volume, we are expecting a decline in the order of JPY 100 billion. So that amounts up to JPY 130 billion of sales improvement compared to the April public announcement.

But for the P&L -- for the P&L, compared to the April public announcement, it's better by JPY 13 billion, out of which FX impact is about JPY 75 billion and pure volume impact is about JPY 36 billion of a negative, which is equivalent to that JPY 100 billion. And for mix difference for product in area, this is big, JPY 42.5 billion. And tariff measures, price increase impact is about JPY 10 billion positive. And for costs, it's about JPY 12.5 billion positive. This is mainly due to tariffs have increased. Therefore, we were able to incorporate strong countermeasures. So net-net is JPY 13.5 billion and other costs are JPY 11 billion. So on a net-net basis, it's JPY 12.5 billion better.

For fixed costs compared to the beginning of the year, it's going to be less. So it's JPY 13 billion better than the April public announcement, therefore. So Indonesia, which is relatively higher margin, it has deteriorated. So it's not just sales volume decline, but it has also led to a mix deterioration as well. Is that the right way to look at it? Yes. Area mix has deteriorated. This is attributed pretty much solely to Indonesia and also Europe conversely improved. So net-net, area mix deteriorated.

Then let me move on to my second question. Regarding Indonesia, for mining and construction equipment, what kind of things are happening on the ground? Can you give me more detail on that? For example, what are the conditions of the customer? What are they saying to you? And for mining, the idle rate, I believe, is increasing. So can you talk about the background as to why sales is deteriorating by explaining about what's happening on the ground there? That's my second question.

This is Hishinuma speaking. Regarding Indonesia, starting off with construction equipment. It hasn't really deteriorated demand-wise in agriculture, but construction equipment demand has been deteriorating. Public works budgets compared to our initial assumptions have become lower in structure. It's probably due to policy. They are actually allocating more to making school lunches free. And that is why they decided to cut public work project budgets, which has had in turn an impact on our construction equipment demand.

As for mining, like we've been communicating from before, the 4,200 kilocalorie thermal coal prices, there is a strong correlation in the market. That's what we've been explaining from before. And prices are quite sluggish, as explained at $42 or $43 a ton. About a year ago, it used to be about $52 or $53. So price levels have been coming down quite substantially. So customer profitability has been deteriorating. So that's hard. But we may have communicated this at Q1 results, but regarding cost, for biodiesel policies, B35 has been revised up to B40. So that has been leading to higher prices and worsening of fuel efficiency. So operation cost is increasing. Also regarding royalties that you need to pay to the government has been increasing as well. Therefore, profitability for the customer has been deteriorating, and that is why [ mining ] Japan is likely to be sluggish for a while going forward.

How about the idle rate? Do you have any numbers on that?

Well, we only have numbers up until August, but it was 9.6%. So compared to before, it has been deteriorating. It used to be about 8% in Q1, I believe.

We are going to take the next question. Mr. Maekawa from Nomura Securities.

This is Maekawa from Nomura Securities. I am going to ask 2 questions. My first question is about the tariff cost and also your measures against it. That is my first question.

As you can see on the Page 16, there is the JPY 50 billion mitigation. And I'd like to know what specific measures you're going to have. And also regarding steel and aluminum, I think there was the impact on the August -- during the August on the end. And first of all, I would like to ask about cost.

So now we are having more the measures. Regarding the tariff cost, excluding April, JPY 77.5 billion. However, this time, we are projected to be JPY 80 billion. And for the mitigation or the improvement and for April, we were projected to have it as the JPY 10 billion. However, now that we are accumulating this to the JPY 30 billion, and there is the JPY 8 billion more the tariff. And for the measures that we are going to have about JPY 20 billion additional. And against the cost, the difference or the cost gap, I said that it's improved and these are where we have gains.

And for our improvement measures, what specific measures we have, first of all, as it was mentioned in April, there's a procurement or the source of procurement are going to be changed. And U.S., Canada and Mexico, they have the treaties among these countries and the -- especially for steel and the aluminum tariff, we are going to expand where the treaties will be applied. That is one of the measures. And regarding the steel and aluminum, so if we do nothing and it's going to be 50%, so that we are going to look at the accurate number about the content. So that is what we are going to do.

So regarding increased numbers, the -- was it mainly because of steel and aluminium?

Yes.

And there is a price increase. So you talked about the increase of the sales price. However, I was wondering if you're going to have the further increase of the sales price? Or how do you see the competitors move, especially in the U.S. market?

As I mentioned in April, starting from August, there's a 40% price up in the States. And compared to April public announcement, we do see the difference for that reason. However, there are some negative numbers. So meaning that there is a slight decline from the number we originally had. And regarding what competitors are doing, so competitors are increasing their prices and the U.S. companies for the time being, we have not heard that they are increasing their prices. In 2022 and 2023, they had the big price increase, which was more than 10%. And from the second half of the '24, actually, they are now going to -- they are decreasing the price.

And during that period, we really didn't have much price increase. So probably we still have the room for a price increase. So that's why we have executed that this August. And for this projection regarding the U.S. for construction, actually, we have revised the sales upward. And we look at the current situation and from the physical beginning, especially for the second half, we were projecting that we will have the downward trend. However, probably that is not going to happen. And for the construction, especially in the States, we are going to project the upward revision.

And I have one additional question related to that. So other companies are doing the strong in the America. However, they had a very -- the last minute, the price increase. And do you have the same concern? Or do you see any improvement in North American market?

So as we mentioned when we talked about projection, so we are now having the upward demand projection in the North America, meaning that the current situation is not that bad.

So -- and regarding the free cash flow and cash allocation for the share buyback, I would like to ask some questions. Regarding the free cash flow, JPY 240 billion is projected. And for the total, I remember that the number given was JPY 320 billion. So I feel like it was revised downward for the cash allocation, is there any other things that we should take into consideration? Or is there anything we have to look at?

JPY 240 billion is the number we gave in July. And from July projection, we have the same number. And there are 2 reasons for this. So first of all, there is the inventory assets. And the tariff impact is bigger than we projected in April that was incorporated for this number. And for sales, especially for mining, there was the difference of timing, especially for the second quarter, and there is going to be a big sales, especially from the Central and the South America. So if it will be delayed, we will not be able to have -- we will not be able to realize the recovery. So that is why we do see decline.

So having said that, there is not the huge decline and there is nothing we really should pay attention regarding the cash allocation. Yes, this is just the delay or the difference of the timing, and there is no change in cash allocation.

Let's move on to the next question from Jefferies, Fukuhara-san.

This is Fukuhara from Jefferies. My first question is regarding Slide 28. Regarding demand in Indonesia, it says that it's not going to recover for the time being. Are you talking that until the end of this fiscal year, end of March? Or is this going to persist going into next fiscal year as well? So can you talk about the demand environment in Indonesia? Is this year going to be a bad year, but are you expecting a pickup next fiscal year? That's my question.

This is Hishinuma speaking. Well, our outlook applies to this fiscal year-end. Regarding our outlook for next fiscal year, it's hard to say at this point in time. But for coal in Indonesia, the impact from China is quite substantial. So China, with production within the country increasing, they have been reducing the amount of imports. However, if there is a turning point once again where they import more, and I think that depends on prices as well, then that will impact Indonesia.

However, like I explained in the presentation, regarding cost, costs have been running up higher. So if there is a policy change regarding royalties that I explained earlier, that should be a positive, but we'll need to scrutinize the details going forward. So in other words, this is impacted by the external environment. It's not really due to your company's competitiveness or should we be concerned. Regarding product competitiveness, dump trucks from China may gradually come into the market. But when you look at the overall big picture, we don't believe its impact is going to be that substantial.

Okay. I see. My second question is about Page 45, B/B ratio. What caught my eye is KMC. When you look at the chart, it is looking upwards. If it's possible for the demand for an order-taking situation for underground mining, have you been seeing any changes?

We haven't been seeing any major changes. So the order environment hasn't really deteriorated. Well, it may look low, but it doesn't mean that the environment has deteriorated.

We are going to take the next question. Adachi-san from Goldman Sachs.

This is Adachi from Goldman Sachs. I have 2 questions. My first question is regarding the cash flow. So you talked about full year projection. And before the sales cash flow, the JPY 410 billion and for the first half, JPY 130 billion. And I would like to see what is project to be improved during the second half.

This is Horikoshi speaking. First of all, there is the inventory asset. And as you can see, when you look at the balance sheet, the inventory asset compared to the end of the March, it's increased by JPY 170 billion. And excluding U.S. dollars, especially there is the base depreciation of the yen. And toward the end of the year, we are going to decrease this. And that is going to be effective and therefore the operating capital that will be effective.

Okay. Just to follow up. When you look at the cycle in the fiscal beginning, I believe that the situation was stabilized in the North America. And the -- when you look at the current situation, there will be more impact from the second half. And I feel like now you're in the phase to expand production and inventory. However, at the same time, I feel like -- looking at the situation for the mining equipment, you are going to decrease it some. So I would like to look at what you're going to decrease?

So when we talked about actual first half, I talked about comparison against the April public announcement, and there's around JPY 100 billion volume difference, which was declined from the April. And for the construction equipment, around 10% was -- excuse me, JPY 10 billion was unachieved and only JPY 90 billion was negative. And among JPY 90 billion, JPY 40 billion can be accounted to the Indonesia and also the North America as well. So there is the difference of equipment and also the coal price drop and also overhaul was delayed, so which is around JPY 30 billion from the North America.

And looking at the Central and South America, there's the timing difference, which is around the JPY 10 billion. So it's going to be -- it is up to JPY 90 billion, this is for the first half. And when you look at the full year and JPY 100 billion was achieved. And for the full year, it's around JPY 20 billion unachieved. And when you look at the breakdown, Indonesia accounts for the same or the higher compared to the first half. And for North America, we are expecting to see significant improvement.

And for Oceania, there is the easing of the housing policy. And from 2023 June, we have been seeing continuous decline. However, now we are seeing the improvement of the situation. So for the construction equipment, as you say, the situation is actually not that bad. However, mining, JPY 90 billion was unachieved during the first half and JPY 80 billion is going to be the unachieved full year. And from Indonesia, JPY 100 billion is going to be unachieved and for the Central and the South America, it was the JPY 10 billion unachieved in the first half. However, for the second half, it's going to be JPY 40 billion overachieved.

And for North America, during the first half, JPY 30 billion unachieved. However, we are going to see the slight recovery from that number. So for the construction equipment, I'm not sure, however, mainly this is because of mining.

My second question is about tariff. I would like to ask about next fiscal. So as long -- as much as you can answer, I would like you to answer. So now the JPY 500 billion and the JPY 35 billion inventories. So as much as you can say, the -- what will be the number for the next fiscal?

So this year cost was JPY 8 billion net or its JPY 55 billion net. And this is we are projecting to see as a cost. And for the payment basis is around JPY 90 billion. And during the fiscal beginning, the inventory asset, which do not get the tariff impact. And that is why the number is a little bit mitigated. However, for the next fiscal, we are now going to have this -- the impact of the inventory assets. And during the fourth quarter, there's going to be the payment basis, which is basically same as the PL, and that will be 4x bigger. So it's just a rough estimate. However, the payment basis, which is equal to the PL it's going to be around JPY 120 billion.

So now we would like to take questions over the phone. [indiscernible] san.

This is [indiscernible]. I have 2 questions. First question is about -- you talked about margins being better in Indonesia compared to Europe. Regarding this difference of margins, is this because of the difference in the competitive landscape? And for Europe, are there any signs of margins improving or any measures you're implementing in order to improve profitability?

Regarding Indonesia, we have a strong partner or distributor there called United Tractors, UT, and we sell through them, especially for mining equipment. Fortunately, our market share is very high. So we have a competitive advantage leading to a relatively higher margin.

For Europe, should we expect any changes in profitability or not really?

This is Imayoshi speaking. For Europe, originally, it's mainly a construction equipment market and competition is pretty tough. So compared to other regions, structurally, profitability is lower on a relative basis.

My second question is about Latin America. You revised up your expectations there. When I look at your financial statements, you were talking about an improvement in copper demand. Regarding tariff impact on demand, is that the case where the tariffs didn't really have that much of an impact on demand?

This is Horikoshi speaking. In Latin America, conditions are better. In regions like Chile or actually, Brazil is not -- has deteriorated and also Mexico and Peru. Those are the regions that have been decelerating. And Brazil's impact is quite large. However, Chile is doing better, Ecuador as well and Colombia.

For Chile, initially, when copper is to be imported into the U.S., we were concerned that tariffs were going to spring up, but that's not the case. Copper from Chile is 98% refined. Therefore, that is not subject to tariffs. So regarding copper production in Chile as well as demand for mining equipment, tariffs did not have an impact.

Regarding tariffs not being imposed on what you explained about Chile, is that included in the mitigation measures?

We originally did not account for it. So no, it's not included.

For Brazil, it has been receiving tariff impact and leading to a demand decline. Is that what you were explaining?

Brazil is facing other circumstances for Brazil and Canada. This is where U.S. tariffs are expected to increase or at least that has weighed on customer sentiment leading to a demand decline.

Now we are taking the next question from the floor. Taninaka-san from SMBC.

I'm Taninaka from SMBC Nikko Securities. So -- so you're not going to expect recovery in Indonesia for the time being. I'd like to learn more about it. Now USD 50 is the coal price and the mining demand is around 2,000 units. However, when we go back to 2017 or 2018, I think it was around the hundreds of the units. And for the construction equipment, it is around 1,500. However, in the past, it was around 800 units. And if the price level continues, do you see that there is a risk that the volume will down to the level of 2017 and 2018? Or do you see a certain level of renewal demand? And the 3,000 to 3,500 units, do you see this is the demand trend moving forward?

First of all, regarding mining in Indonesia, so the coal was the primary material. However, and this is highly correlated to the price of coal. And if it drops, then a contractor will not purchase it. Then there is another variable, which is overhaul timing. So based on our experience, overhaul is once in 6 years. And the last -- the renewal timing was around 2020. So we would like to see how does that impact.

My second question is there's mining equipment and the after service, which I'd like to learn separately. So for the equipment, there is the demand worsening or the timing difference. And I'd like to ask about after service. So the operation rate of the equipment at the mining and how does it support the mining in general? And is it going to recover from next year? I'd like to understand a trend. So do you have any data of the usage, the rate or the operation rate at the customers' site?

Regarding mining, there's equipment, parts and others. And the parts are mainly from Indonesia. However, there are coal-related customers. And they are getting weaker than we expected. And for general service, there is no change.

Are there any other people from [indiscernible] who have additional questions? [indiscernible] from Bloomberg, please.

This is [ Kitaura ] from Bloomberg. I just have one question. Maybe a big picture question, but President Trump was in Japan and JPY 60 trillion into AI and energy infrastructure was being talked about with many companies being a part of this initiative. So when it comes to infrastructure investment in the U.S., digging and filling is probably likely to increase in the future. So towards next year, are there any upside expectations you have for the U.S. market for next year?

Well, housing and nonhousing commodities is how we break up the U.S. market. And where there are investment projects, demand in the nonresidential segment increases and picks up. But this is something we'll need to wait and see. We're not really sure about next year yet.

And I'd like to take the next question from participants on the call. McDonald-san from Citi.

Just to confirm, so in answering the previous questions, Horikoshi-san mentioned that the tariff impact will be 4x. Did you say JPY 120 billion?

Yes.

And for this year, it's going to be around JPY 55 billion.

Yes. And for this year, as I mentioned in the beginning of the explanation, the JPY 7.7 billion net for the first half and the JPY 55 billion full year, meaning that the third quarter and the fourth quarter are reaching towards the end of the fiscal end, we are going to see bigger impact. And before the fourth quarter, the mitigation impact of inventory assets will go away and the numbers of the fourth quarter, if you multiply that for, then you will be able to have the full year number for the next year.

So regarding the mitigation measures, such as the price increase or procurement or the change of the suppliers, then of these included with the worst scenario, you're projecting JPY 120 billion. Is that correct?

So taking mitigation measures into account with the current measures we have, the number is going to be JPY 120 billion. However, every year, of course, we do have the regular price on the increase, which we are going to have the next year as well. And it's about how much we'll be able to absorb. And I think we -- it's the same as what we explained in our January -- excuse me, July announcement.

So this May, at the various meetings, U.S. production or the plant construction, there are many discussions going on. But basically, you are not going to make any reinvestment, right? You do not have any plan to expand your U.S. factories, right?

So in the past 14 years, 300 million is what we make as the investment into our facilities, we are going to continue that.

Do you have any plan to expand the local production in the states?

We would like to expand that as much as possible.

I think there was another person in this room. Yes. Once again, we'll go back to Sasaki-san from UBS.

I have an additional question. Regarding construction equipment demand in the U.S. and Europe, you were saying that it's picking up. So can you talk about the reasons why we're seeing a pickup in construction equipment demand by region?

First, for Europe, public works budgets are available in Europe. So we're just saying that it's a bottoming out of demand rather than it pickup and -- but that's a positive. For the U.S., we have been giving out explanations already. The impact from tariffs haven't really had a negative impact on the market itself. The market is not that bad, and we are expecting investments to take place, and that's why we believe things are looking upwards. However, tariffs have not been completely locked in yet. So we'll need to pay close attention to the market.

For the U.S., regarding residential, nonresidential infrastructure as well as rental, what are the colors? Or how do you view the conditions for each segment?

Well, for the first half, rental clearly has been improving, trends were double-digit declining for rental until last year. But for the first half of this year, Q1 was down, but Q2 was up by 11%. So rental is doing very well. Also energy-related. This too turned positive in the first half of this fiscal year. For nonresidential as well, such as AI-related power gen facilities I presume, it wasn't doing that bad. It was trending positively, but positive trends persist. So all in all, residential is slightly weak, but apart from that, all segments are becoming better than before.

I'm sorry for going on. But for residential, are you seeing any pickup due to the rate cuts or no as of now?

If you look at Page 23, where we show housing starts, it doesn't look like it's picking up.

So we'd like to take the next question from phone call participants Tai-san from Daiwa.

This is Tai. Probably, I should ask this question separately. However, regarding the results and the plan of Indonesian sales, probably now you will be able to disclose that information, but is there any numbers you can disclose as of now?

So we have already disclosed the numbers related to Asia. And regarding Indonesian figures, it's about half or slightly less than half. I do not have specific numbers with me, but it's just about the half of Southeast Asia.

What page was it?

I think it's Page 25. If you look at Page 25, demand, the Indonesia percentage is quite high among Southeast Asian countries. So Indonesia is pretty big.

Okay. So you spent quite a lot of time to talk about Indonesia. However, you do not have specific numbers for Indonesia. And that is what I really wanted to understand more. And I feel like we have to have asked this question later, and that is why we wanted to have some figures related to our sales. But anyway, then I would like to ask the numbers of cost difference between plan and actual. And I think there's some tariff impact as well, which is smaller -- smaller around JPY 10 billion from the fiscal beginning. So could you please give us the explanation about this?

So starting from first half, JPY 13 billion is about the cost difference. And as I said, there's the tariff and the impact of JPY 7.7 billion. And however, there are some the materials which have the price decrease. However, there's the tires or the human resources and the impact. And all in all, it's the JPY 13 billion for the first half. And if you look at the full year on Page 19, JPY 64.1 billion negative and the JPY 55.1 billion is the tariff impact. And there's increasing tariff cost. And now we have the JPY 30 billion size of the tariff measures and that number are included into JPY 55.1 billion. And there is tires or the human resources cost of our -- the suppliers and there is around the JPY 10 billion.

So this is going to be my last point. For the next year, as the [indiscernible] asked the question, additional JPY 40 billion -- excuse me, the JPY 70 billion increase, meaning that the -- when we look at the numbers, it's going to be around JPY 430 billion. And of course, there is a discussion about aiming to achieve the JPY 3 trillion sales and such. However, for the next year mitigation measures, I would like to learn more about your potential actions. So this is increased net base, which seems that there is -- nothing more that you can do. So how do you see the situation?

This is Imayoshi speaking. And as Horikoshi explained, JPY 120 billion is the number we have for the next year, which does not include a price increase. Price increase is not only due to the tariff, but we are going to make efforts to increase price not only in the states, but also other areas. And there is tariff negotiations still going on between other countries. So we have to monitor the situation carefully and how to mitigate tariffs. So in addition to the measures that we have this year, we have been working on mid- to long-term measures, which we are expecting to see certain impact. And of course, we are going to have -- we have to have company-wide cost reduction, and we will see what as well -- what will be the impact overall.

So as it was mentioned that the Caterpillar really didn't increase the price. And for Komatsu and Hitachi, I think no one really doesn't see whether you will be able to increase prices and there is a strategy difference. And when you look at the reactions from the dealers, do you see any -- the difference? So Caterpillar is not going to increase the price. And under such situation, do you think you will be able to increase your prices?

So we just have a price increase, and we just saw this tariff situation, and we are going to look at the retail situation as well.

Any questions, additional questions from the floor? If not, this concludes today's meeting. I'd like to end the fiscal '25 Q2 business results briefing. Thank you very much for watching and attending.

This is Horikoshi, the CFO. I'll explain the summary of the financial results for Q1 fiscal 2025.

Page 4 shows the highlights for the first 3-month period of fiscal 2025. The exchange rates are JPY 145.5 to the U.S. dollar, JPY 162.5 to the euro and JPY 92.6 to the Australian dollar. Compared to the same period last year, the yen appreciated against the U.S. dollar, euro and Australian dollar.

Net sales decreased by 5.2% year-on-year to JPY 909.5 billion, and operating income decreased by 10.6% to JPY 140.4 billion. The operating income ratio was down by 1 point to 15.4%. Net sales and operating income decreased, respectively, despite the promotion of price increases due to the appreciation of the yen year-over-year as well as a decrease in sales volume and increasing costs. The impact of additional tariffs imposed by the U.S. in Q1 on tariff costs was minimal. Net income decreased by 16.9% year-on-year to JPY 91.2 billion.

On Page 5, I'll talk about segment sales and profits. Net sales in the Construction, Mining & Utility Equipment segment decreased by 5.5% from the corresponding period a year ago to JPY 844.9 billion. Segment profit decreased by 14.1% to JPY 122.3 billion, and the segment profitability decreased by 1.4 points to 14.5%.

Retail Finance sales remained about flat year-on-year at JPY 30.4 billion, while segment profit increased by 22.5% to JPY 9.4 billion.

Industrial Machinery & Others sales decreased by 4.6% year-on-year to JPY 43.5 billion, while segment profit increased by 43.5% to JPY 7.2 billion.

I'll explain the factors behind the changes in each segment later.

Page 6 shows the sales by region for the Construction, Mining & Utility Equipment segment. Net sales in the segment decreased by 5.5% from the corresponding period a year ago to JPY 842.3 billion. Excluding the impact of foreign exchange, the decline in sales in North America was significant, mainly due to a decrease in sales of Mining equipment compared to the same period of the previous year. In other regions, excluding Japan and China, sales increased in real terms, excluding the effects of FX rates.

Page 7 shows the causes of difference in sales and segment profit for the Construction, Mining & Utility Equipment segment. Regarding sales, despite offsetting the decline in volume with improved selling prices due to the impact of yen appreciation compared to the same period last year, sales decreased by JPY 49.4 billion from the corresponding period a year ago.

Segment profit decreased by JPY 20 billion from the corresponding period a year ago, mainly due to the appreciation of the yen year-on-year, although the decrease in sales volume and increased costs were partially absorbed by improved selling prices. The segment profit ratio decreased by 1.4 percentage points from the corresponding period a year ago to 14.5%.

Page 8 is about the Retail Finance business. Assets decreased from the previous fiscal year-end, mainly due to the impact of the Japanese yen's appreciation against the U.S. dollar. New contracts decreased from the corresponding period a year ago due to yen appreciation and a decrease in new contracts in North America. Revenues remained about flat from the corresponding period a year ago due to the appreciation of the yen despite an increase in interest income.

Segment profit increased by JPY 1.7 billion from the corresponding period a year ago, mainly due to lower procurement costs.

Page 9 shows segment sales and segment profit of the Industrial Machinery & Others segment. Sales decreased by 4.6% from the corresponding period a year ago to JPY 43.5 billion. Segment profit expanded by 43.5% year-on-year to JPY 7.2 billion, and the segment profit ratio increased by 5.6 percentage points to 16.6%. Although sales decreased due to a decline in sales of large press machines, segment profit increased due to increased sales of high-margin excimer laser maintenance.

Page 10 shows the consolidated balance sheet. Total assets amounted to JPY 5,846.2 billion, an increase of JPY 72.7 billion from the end of the previous fiscal year, primarily due to an increase in inventory assets. Inventory assets totaled JPY 1,500.7 billion, an increase of JPY 94 billion from the previous fiscal year-end. The equity ratio decreased by 1.9 percentage points from the previous fiscal year-end to 53.1% and the net D/E ratio stood at 0.29x.

This concludes my part. Next, Mr. Hishinuma will provide the outlook for FY 2025.

I am Hishinuma, General Manager of Business Coordination Department. I will now discuss the FY 2025 earnings forecast and the status of major markets.

Page 12 shows the latest estimates of tariff costs based on the U.S. government's announced tariff policies and rates. We have not revised our demand sales or profit outlook due to the tariff policies, but we now estimate a JPY 30 billion decrease in payment-based tariff costs and a JPY 3.5 billion decrease in profit impact compared to the April public announcement.

As for the profit impact, we expect the decrease to be smaller than the payment base due to factors such as inventory effects within the U.S.

Page 13 summarizes the tax rates that form the basis of these estimates. For items other than steel and aluminum, the applied tax rates by country have, in many cases, decreased compared to our April forecast due to bilateral negotiations. However, for steel and aluminum, a 50% rate was applied globally as of June. And as a result, many cases are now higher than our April forecast.

Page 14 provides an overview of the FY 2025 earnings forecast. Our full year FY 2025 forecast remains unchanged from our April outlook.

From the next page onward, we will explain the demand trends and outlook for the seven major products.

Page 15 onwards covers the demand trends and outlook for our seven major products. The demand figures for the seven major products include Mining equipment.

Figures for Q1 FY 2025 are preliminary estimates by our company. Estimated demand units for Q1 FY 2025 declined by 3% year-on-year. We have not revised the full year demand outlook for FY 2025, but we will explain the situation in major markets on the following pages.

Page 16 shows demand trends and outlook for the North American market. Demand in units in Q1 FY 2025 declined by an estimated 4% compared to the same period last year. We have not revised our demand outlook this time. However, inventories of construction equipment at distributors have been adjusted to appropriate levels, and there are signs of stabilization in rental demand.

On the other hand, the impact of the U.S. tariff policies on demand in the North American market remains unclear. So we will continue to closely monitor the situation.

Page 17 presents demand trends and outlook for the European market. Demand in units in Q1 FY 2025 are estimated to have declined by 3% year-on-year. Although we have not revised our demand forecast due to interest rate cuts by ECB and fiscal stimulus announced in Germany and the U.K., we see signs of improving business sentiment and stabilization in demand, and we will continue to monitor future developments.

Page 18 shows the demand and the trend and outlook in Southeast Asia. In Q1 FY 2025, estimated demand units increased by 7% year-on-year. In Indonesia, our largest market, demand began recovering in the second half of FY 2024 following last year's presidential election. And as a result, demand increased year-on-year in Q1.

We have not revised our demand outlook this time, but recent declines in coal prices, delays in large-scale projects and reductions in infrastructure budgets lead us to closely monitor future demand trends for both Construction and Mining Equipment.

Page 19 covers demand trends and outlook for the Japanese market. In Q1 FY 2025, demand in units are estimated to have decreased by 16% compared to the previous year. We have not revised our demand forecast, but rental equipment utilization is currently sluggish, which is putting downward pressure on demand. Labor shortages are also seen as a negative factor for the Construction industry. So we will continue to monitor developments closely.

Page 20 shows the price strength and outlook for major minerals related to Mining Equipment demand. Prices for low-grade coal in Indonesia are on a declining trend and are being closely monitored, while other minerals remain at relatively high levels in the long term.

Page 21 presents demand trends for Mining Equipment. Demand units in Q1 FY 2025 are estimated to have declined by 3% year-on-year. Although demand declined in regions such as North America, overall demand remained solid. We have not revised our demand outlook. With coal prices currently declining in Indonesia, we will closely monitor future demand trends. However, we expect demand in other regions and for other minerals to remain generally firm.

Page 22 shows the sales of Mining Equipment. In Q1 FY 2025, Mining Equipment sales decreased by 8% year-on-year to JPY 406.3 billion. Excluding the impact of exchange rates, the decrease was 2%. We have not revised our FY 2025 full year sales forecast, which remains a 10% year-on-year decrease to JPY 1,727.9 billion. Excluding currency effects, this represents a 2% increase in revenue.

Page 23 provides the sales outlook for original equipment, parts and services in the Construction, Mining & Utility Equipment segment. In Q1 FY 2025, parts sales decreased by 8% year-on-year to JPY 241.9 billion. Including services, the aftermarket as a whole accounted for 54% of total segment sales. Excluding currency rate effects, total aftermarket sales increased by 1% year-on-year. The FY 2025 full year forecast for parts sales remains unchanged at JPY 987 billion, a 6% decrease year-on-year.

The total aftermarket ratio, including service, is forecast to be 53%. Excluding FX rate, total aftermarket sales are also forecast to rise 4% year-on-year with no change to the previous outlook.

This is Page 38 onwards. We'd like to share with you the topics for Q1. This is Page 38. Komatsu has signed a contract to supply mining equipment for Reko Diq copper and gold mining project, which is being promoted by Barrick Mining Corporation of Canada in cooperation with the Pakistani government and the Balochistan Provisional government. This marks Komatsu's first large-scale order for Mining Equipment in the Middle East territory with equipment deliveries totaling approximately USD 440 billion scheduled to begin in FY 2026.

In conjunction with this contract, we will establish Komatsu Pakistan Mining to strongly support efficient mining operations. We also plan to make investment through Komatsu Middle East, our regional headquarters, to enhance part supply systems supporting the project.

This is Page 39. Komatsu has introduced its new power-agnostic truck at Aitik Copper Mine, one of Europe's largest copper mines owned by Boliden of Sweden. As the first unit in the power-agnostic truck series known for its adaptability to multiple power sources, the diesel trolley model 930E has begun operating. This marks the world's first deployment of a power-agnostic truck operating at an actual mine site. By adopting a modular design on the same machine platform, power sources such as diesel can be replaced with batteries or hydrogen. This enables a smooth transition to lower emission power sources like battery electric or hydrogen fuel cells in line with customer needs in the future.

This concludes my presentation.

Now we would like to take any questions that you may have. The first question is from Maekawa san, Nomura Securities.

This is Maekawa from Nomura Securities. First question is about Page 7, volume product mix, which is JPY 10.3 billion negative. Can you give me the breakdown?

This is Horikoshi speaking. For pure volume, it's minus JPY 5.5 billion. And for product mix and area mix, it's minus JPY 1.7 billion on a net basis. And there were one-off items, which was worth JPY 3.1 billion minus. And for the JPY 1.7 billion minus, for product mix, it was negative related to mining parts. Compared to the previous year, it was down.

For area mix, it was contributing positively due to Indonesia and Chile. Compared to last year, we saw an increase. So on a net basis, it was minus JPY 1.7 billion.

I have two additional questions. The decline in mining for North America, didn't that have an impact on the mix? And you said minus JPY 3.1 billion for one-off factors. Can you give me more detail on that?

For Mining, in North America and its impact, it wasn't that substantial. It was more attributed to mining parts and that ratio went down. That had a greater impact. For one-off items, there were some customer-related one-offs. And there was a settlement that was reached leading to this cost item. So this is temporary and one-off. So I guess it's not going to be sustained or no additional expenses shouldn't -- are not going to be incurred. No, that's not going to happen.

My second question is about tariffs, the latest forecast. First, for the inventory part, it has declined. Tax rate revision, steel and aluminum, this is not attributed to external factors, I guess. When you crunch the numbers, you didn't have that much of inventory. And the P&L impact this time around, even if the rate changes, it hasn't really changed. So regarding the trends of inventory, can you give us more commentary?

This is Horikoshi again. As you rightly said, at the beginning of the year, for the inventory that's not going to be impacted by tariffs. After the beginning of the year and after we crunched the numbers, we didn't have as much. So that led to this decrease compared to the April outlook.

So if you were to point it out, what part was different? Or were there less inventory that you were able to ship? Can you give me more flavor on that?

For steel and aluminum, tariff rates that is going to be imposed. We scrutinize the mix and its contribution. And also, we looked at our work in progress inventory at our factories to see what kind of impact they have. So that's how we scrutinize the numbers.

Understood. Also for steel and aluminum, it's going to increase. And for reciprocal tariffs, it's positive and negative. So the remaining portion is the rates between U.S. and China. And I guess, the reciprocal tax portion was going to be greater because Japan went down. But regarding the tariffs, steel, aluminum and others from JPY 140 billion, it went down to JPY 110 billion. But how much do each of these factors contribute, because then we'll be able to get a better idea. Can you walk us through additionally with numbers, hard numbers?

Well, regarding tariffs between U.S. and China, at the time of April public announcement, we were assuming 145%. But with the agreement reached, it was 30% until August and from September, 54%. Therefore, this difference is pretty big. Also, for steel and aluminum, this mix, it's kind of spread out. So it's hard to pinpoint where. But I would say, on a relative basis, it's higher in Japan as well as in China.

And for reciprocal path, Japan has the largest impact, and it's JPY 13.5 billion under others, but the majority of this is attributed to Japan. So for JPY 13.5 billion plus for tariffs on steel and aluminum, 25% went up to 50%. So the original JPY 13.5 billion, did it double, go up to JPY 27 billion, and that's why it's up by JPY 13.5 billion.

And for reciprocal tax, I assume that it should be around JPY 100 billion, but it's only down by JPY 13.5 billion, and it seems that, that's very small. So is that the right way to look at this volume-wise?

Well, the JPY 110 billion -- based off the JPY 110 billion, about half of that is associated with reciprocal tariffs, about JPY 30 billion is steel and aluminum.

We'd like to move on to the next question from UBS Securities. Sasaki-san, please.

Can you hear me? This is Sasaki from UBS Securities. So my first question relates to the Q1 results. I'd definitely like to hear your recap of Q1. So especially in comparison to the beginning of the year. So for the Construction Equipment and Machine -- the Mining Equipment, how is your outlook changed? And also the OP, JPY 140 billion. In comparison to the internal plan, how do you perceive this number? So that is my first question.

This is Horikoshi. So as for Q1, so in terms of sales, the FX difference, about just short of JPY 60 billion or so. So initially, we're looking at JPY 135 to the dollar. So it's about JPY 57 billion in terms of the FX difference. Also the volume decline, so that's JPY 29 billion of a negative. Also, the pricing difference, it's down by JPY 2.5 billion. So that's on a net basis to JPY 25.5 billion. That is a difference from April PA increase by JPY 25.5 billion, that is.

Also in terms of profit, we talked about the FX and sales. So the impact, it's about JPY 11.5 billion. That's an upside. But contrary, about the same amount relates to the volume decline. Also in terms of mix difference, there's been quite a difference here, especially for mining parts and also some of the one-off factors.

Also, the cost, it was an excess and also the fixed cost excess that has been offsetted. So all in all, in the end, the price differential, JPY 2.5 billion that translated to a minus a negative factor all in all.

So in terms of the volume declined by JPY 29 billion. In comparison to the beginning of the year, which area -- which business that do you see a downward trend?

So in terms of the ratio, or in terms of the amount rather, the largest came from Mining segment. So for Construction Equipment, it wasn't so large. It's about JPY 6 billion or so. So where we have seen difference or change, as I already explained already, for the Construction Equipment, that is in Indonesia. That's where the difference was. And also Japan.

So Japan, if you look at the Q1 demand, as you can tell, it was not good. Where it was slightly better was North America. So on a net basis, JPY 6 billion of negative it was.

Now moving on to Mining. So basically, the remainder part is the Mining business. North America, so this is just the change because each unit is quite large in volume. So basically, it's been pushed out. Also for Latin America, it has been pushed out. So those two have been the largest factors.

Also, I talked about Indonesia. The coal prices have been on the decline and because of different regulations and the Indonesian government are regulating the export pricing. So those have posed a negative impact. So this is more related to the demand situation.

The second part of my question, I also like to pose a question related to the tariff impact. So in the slide, you gave us an update. So these are Pages 12 and 13. Thank you very much for the update. So I was able to fully understand the current state. So now I'd like to ask about the countermeasures going forward, especially given the current environment rather than manufacture in the U.S., maybe it is cheaper to actually manufacture in Japan. That may be the case. Also, the price increase. Now that the cost has been on the rise, surcharge could be one of the way to address this. So given the recent tariff situation, how does Komatsu intend to take initiatives? If you can give us an update, that would be highly appreciated.

So this is Hishinuma. Thank you very much. So basically, starting from what we can do. So basically, what we have been shipping to Canada and Latin America from North America, we are starting to conduct direct delivery. Also in terms of pricing, as already posed, back in April, when we announced the forecast, we mentioned that we will explore possibilities of surcharge. We've mentioned that back then. However, if it's surcharge, the link with the tariff rate is quite strong. So rather than looking at the surcharge rather than that, perhaps looking at the usual increase in inflation, those -- we are seeing a regular increase in the cost. So more of a regular price increase would be strengthened. We would like to pursue that direction instead.

So at the distributors and at users, how are they receiving this? If you can give us how you've been able to penetrate the price increase so far. Please give us an update.

So already, the distributors, we are just about to start announcing. So those could be factored in going forward.

Let's move on to the next question. Adachi-san from Goldman Sachs, please.

Adachi from Goldman Sachs. Can you hear me?

Yes. We can. Please go ahead.

I also have two questions. The first one about the demand environment for Mining Equipment. You talked about the first quarter in North America, and there was a pushout in sales for the mining business. Are you able to get the sales during this fiscal year?

And of course, I'm sure the environment is impacted by tariffs, but can you say that North America demand is brisk and also for Asia, you were talking about declines around coal prices that may be a concern. So going into the second half of the year, are you afraid that demand may deteriorate?

Our view is that for North America and Q1 timing shift, the same amount is going to shift and will be pushed out. And for Indonesia, for Q1, for Mining and Construction, it declined. And our view is that it's going to be pretty bad. Rather than the impact on Q1, we expect that Q2 and beyond compared to our plan, we are going to see negative trends come through.

By the way, for those two regions, you were -- your view was quite negative. But for iron ore or copper, do you think you'll be able to offset that poor demand trend?

Well, for copper, prices are firm. We believe that we can exceed expectations by about JPY 30 billion for Latin America and for Europe, it's doing well. So we also believe it's going to beat. And also until last year, Oceanic continued to exceed expectations. It continues to be brisk. So we believe that they are likely to exceed as well.

One more additional question I have is, you talked about Pakistan, and you said $440 million. So I think that's about JPY 60 billion worth. That's pretty big. So what's the period of the sales you're going to be making? Over how long?

I do believe it's over 5 years. It's a 5-year contract.

My second question is about North America and Construction Equipment. So inventory corrections are probably finally over. But what kind of trends do you see around demand? Did you see last-minute demand because of tariffs? So can you talk about the current environment as well as if you're seeing signs for a pickup in the second half of the year?

This is Hishinuma. For North America, last-minute demand associated with tariffs, we're not seeing. That's our view. And going forward, regarding the impact from tariffs, there's still uncertainty there. And as far as we're on the topic for North America, I think there is an aspect of trying to call in investments into the country. So if investments increase, that may have a positive impact on our business. So there's both negative and positives is what we're expecting, but we need to closely watch what unfolds going forward.

We'd like to move on to the next question from Jefferies Securities. Fukuhara-san, please.

So this is Fukuhara from Jefferies Securities. I'd also like to pose two questions. First question relates to the Q1 based on the results. Q2 onwards, we'd like to hear your thoughts.

So on a full year basis, there has been no revision in terms of the full year guidance. But Q1, if you were to multiply the Q1 sales, it would pretty much reach the full year guidance. However, in terms of profit, so JPY 240 billion times 4, so it went up to JPY 540 billion or so. So of course, there will be impact from the tariffs. But ultimately, JPY 560 billion or so, could we expect to see the profit to land on a full year basis? That is the first question.

So this is Horikoshi. So in terms of the sales, Q1, it was short by JPY 29.6 billion. And on a full year basis, quite a large amount of the shortage we may see on a full year basis. So I wouldn't say 4x this amount, but it will be quite substantial. That is the expectation.

Also, Hishinuma-san mentioned about the selling price. So starting in August, we would already increase the selling price. And that has been notified already. And it is certain that we will make that announcement. So the selling price increase definitely should pose an impact.

In terms of profit, you talked about the volume decline. It really depends on how we look at the FX. So we might have some gains from the FX expectation, and that may actually have a positive impact. So perhaps the overall number may not change so much in terms of profit.

Then my second question, about the BP ratio for mines. So looking at the most recent trend, the U.S., Germany and also KMC, there's been an increase. There's been a decline on a parent-only basis. So I think this is the original equipment. But in the next quarter onwards, do we expect to see a similar trend for the next quarter onwards? Also, so in terms of the backlogs, towards next year for Mining Equipment, can we expect to see increase in the revenue?

So this is Hishinuma. Thank you very much. So in terms of the Mining segment, so we have Latin America and North America and Oceania. So the sales accounts for 60% to 70% by these regions. So taking those into account, so the majors -- the mining majors, the trend has been quite brisk. So we do expect the brisk trend to continue.

But Indonesia, as we mentioned, the coal price is on the decline. So now recently, sometimes it goes below the $40 mark. So Komatsu's stand-alone mining business will be hit by this. So there's a chance that we may weaken around here.

Let's move on to the next one from Nikkei, [ Kuzey-san. ]

I'm [ Kuzey-san ] from Nikkei. Going back to the previous question regarding North America, you were talking about the pushout leading to sales decline in the Mining business. I guess this is not a change in the environment, but it's just the contract impact. So what you saw decline this year is going to materialize next fiscal year? Is that the right way to look at it?

This is Horikoshi speaking. Regarding mining, apart from Indonesia, the markets are doing well. North America, I talked about the pushout, but this is just because of a pushout in a given deal. So no concerns there.

Understood. My second question is about -- you talked about JPY 3.5 billion cost decline related to tariffs. In your outlook for the full year, you didn't revise it. Is that because you wanted to keep a buffer?

Well, this amount is not that big when you consider the total numbers, and there's a lot of variable factors. So in a comprehensive way, when you think about it, we thought that we shouldn't revise our outlook at this point in time.

So we'd like to receive the next question from Citigroup Securities, McDonald-san, please.

Can you hear me?

Yes. Yes, we can hear you.

So I have a question related to the Mining segment. So Horikoshi-san mentioned about copper. So the copper is doing well. Perhaps it's an access. You mentioned about access in comparison to the plan. But when we look at and read the media newspaper, or the U.S. government, they're saying the copper tariff, if it's 50%, Quadco -- Quadco made some concerning the views, and that has been taken up in the media.

So you talked about Indonesia, the coal prices declined. You've mentioned that. So that is a concern. But on going forward, in the Chile business, given the copper tariffs, would that the tariff pose an impact on the Chilean business?

So we have been serving the local -- the market as well. So from Chile to U.S. export, it is not so large. So we are not overly concerned. So we believe the impact will be minimal.

But of course, if you read the newspaper, so in terms of the survey in the U.S., the copper that is most frequently used is actually imported from Chile. So there might be a gap in terms of how we recognize the situation. So I think the Chile's -- you're talking about the total production, the Chilean is not so large.

So I'm just worried about Quadco's comment, but Komatsu feels that it's not an issue.

So should we just assume that it's not a concern then? Also, I have a follow-up question related to Mining. So you talked about the product mix. So the mining parts were somewhat weak. But if you would exclude FX, the background to the weakness in the mining parts, what exactly is there? What are some of the reasons for the weakness of the mining parts?

I might have actually stated that might cause some misunderstanding. So if you look at Q1, so the mining parts, perhaps it was less in comparison to the previous year. But if you look at on a full year basis, that is not the case. We do not expect that weakness on a full year basis.

So last year in Q1 then, the Chile's the bad climate, you mentioned about some of the negative impact from there. But this year, in Q1, for mining parts, what are some of the factors behind these negatives? So you mentioned about Indonesia's concern. But aside from Indonesia, you mentioned other regions are brisk. But my impression, maybe it's not so brisk. So I'm just concerned about the mining parts and the mining parts in Q1.

So for Q1, the mining parts, sales has come down in regions. Of course, this is relative to the previous year, that is North America, Asia and Oceania. Those are the regions.

So what you've mentioned is about Latin America?

So rightly said, last year, because of the climate factor, Q1, the mining part sales has come down. But for Latin America, in comparison to last year, actually, the part sales has increased for this year.

So year-on-year, so North America and Asia and Oceania, are those one-off then?

Yes, for Q1 for parts, North America, Asia and Oceania, those are the regions. On a full year basis, though, again, this is a one-off factor on the Q1. But for parts on a full year basis, for mining, that is, we shall see an excess in comparison to the plan.

Understood. Sorry, let me hold, I just need to confirm. Sorry, let me just restate this. So Q1 for mining parts only. So for mining, so Q1 compared to last year, it was weaker in North America, Asia and Oceania, it was weaker. But Latin America, stronger than last year. So on the full year basis, Q1 numbers are just a one-off. So for North America, Latin America, Asia and Oceania on a full year basis, on a real-term basis, we shall see an excess in comparison to plan. Understood.

Next question, Taninaka-san from SMBC Nikko Securities.

This is Taninaka from SMBC Nikko. My first question is about -- I'm on this topic again, but excluding FX, regarding the progress for Q1, was it broadly in line with your expectations? According to what you've been saying, mining is good except for Indonesia. But for North America, there has been a timing change and push out. And for Construction Equipment, inventory corrections have run its course in North America. So there's ups and downs.

But as of Q1, considering the uncertainty we're facing compared to your company plan, excluding FX impact, do you view it as steady progress or not? Please walk us through.

Well, earlier, I said volume difference is JPY 29 billion, and there's going to be a big negative for the full year as well. In principle, regarding sales, Japan and Indonesia are expected to contribute negatively. And for other regions like North America, for mining, there has been a push out. And for construction equipment, we believe trends are going to be firm. It's not that bad, and we'll see benefits from selling prices. So on a value basis, it should be positive.

My second question is about based off tariffs and regular price increases that you are going to conduct, you said from the orders you're going to take from August, you will be increasing your prices. This is probably not accounted for in your plan. But from the second half of the year, is it going to start to take effect? And at least half of your cost increases are going to be offset by this? Can you give us some more flavor on this?

From August orders, we're expecting an impact of more than JPY 10 billion.

I would like to receive the next question from NHK, [ Ono-san, ] please.

So this is [ Ono ] from NHK. Can you hear me?

Yes, we can. Please go ahead.

So this is a fairly basic question. But in the initial explanation, you mentioned the Q1 results, the tariff impact and cost increase, you mentioned that it was minimal. So it is so minimal that there is not much of a number here. On a full year basis, JPY 75 billion of impact is expected. But what exactly was the impact for Q1?

So Page 7 and the analysis where there is a cost difference, minus JPY 4.1 billion is included here. Tariff, about JPY 2 billion is inclusive in here for Q1. So at the beginning of the year, we had inventories in the U.S. and the inventories will come down. Therefore, Q1 onwards to Q4, the tariff costs will gradually increase. So on a full year basis, as mentioned, well, the number I just mentioned, that will be the full year number.

Also another basic question. So on the 23rd of July in Japan, the Japan-U.S. negotiation, there was an agreement being made. So in terms of reciprocal, the tariff, then initially was 24%. Now it's down to 15%. So how do you evaluate this?

So of course, there's an increase for steel and aluminum, but taking all those into account, how do you review and evaluate this development?

It's quite a huge different -- huge impact. So this JPY 78.5 billion number. So that's a 1.5% vis-a-vis the total sales. In this fiscal term, we have the impact from the inventory. So the impact is somewhat mitigated. But next year, there will be an absence of the impact from the inventory. And also the reciprocal tariff has always happened at the beginning of the year. So that would be a positive. So we do believe the impact will be larger for next year. So 24% to 15%, it is not welcoming.

So you just believe that 15% is still large, then?

Yes, it is still large.

We're running out of time. So the next question will be the final question that we are going to take. Tai-san from Daiwa Securities, please.

This is Tai. Regarding price increases, towards the volume, should we expect price increases to have a negative impact on sales volume or not? And on the other hand, for tariff rates, as we're seeing progress on the final rates, there may be some activity around capital investments going forward. In accordance with that, for construction equipment demand, do you think there's going to be a positive impact on demand? Are your people hearing any positive news? Hishinuma-san also talked about this topic, but can you talk about the positives and negatives? That's my question.

Well, after COVID, our peers increased their prices quite substantially. As you may remember, in our case, we were relatively modest at 3% to 4% price increases back then. Therefore, at the beginning of this year, we have already accounted for further sales price increases. And this time around, we're going to be raising our selling prices even more.

We had a discussion thoroughly in our market, and we were able to reach a conclusion that at this magnitude of selling price increases, we will not be impacting sales volume. And looking at the conditions of the North American market right now, our demand projection is 0% to minus 5%. At the beginning of the year, we were saying about tariffs that it's going to be a decline about 2.7%, and that's accounted for. So the market itself is not that bad, to be honest. So we're not that concerned.

Also, what about any opportunities you see? Do you hear anything positive in the market?

Well, opportunity-wise, well, we don't really hear unfortunately, about any specific projects right now.

Okay. Understood. This might be a very rough question, but compared to 3 months ago, it might be the way you're communicating, but I think you're lower key in the way you're communicating. So excluding FX impact, that as well, I guess the headwinds you're facing are stronger than before. That's how you sound like.

Well, tariff rates are lower than we initially expected and there's the inventory things that are positive as well. But how should we interpret the past 60 minutes? I'm not digesting everything well. Well, we're concerned in an extreme way, that is. We're concerned about Indonesia and Japan, but other than that, we are not concerned.

For Japan, Q1 was poor in performance. And we are analyzing the reasons why. But for Japan, during COVID, demand continued to stay flat. So our view is that future demand was accelerated for us, and that is why this fiscal year is likely to go down.

And for Indonesia, it's a market where people are sensitive to coal prices. And currently, coal prices are lower than $40 a tonne now at around $39. So that's one thing.

And also the government of Indonesia. When exporting, they're going to mandate the use of market prices when they ship their coal, and that's pretty expensive. So people are withholding the purchases and also mandatory implementation of biodiesel rules, and they're talking about raising the 35% ratio to 40% when it comes to fuel content.

And for royalties, they also increase the ratio that people need to pay. So all of these factors built up and that's weighing on customer sentiment to purchase. So that is why we -- our view is that Japan and Indonesia is bad. For other regions, we don't see any tailwinds, especially for Europe. Compared to expectations, it's trending quite nicely and positively. We clearly see that the trends have been bottoming out.

Thank you very much. We would now like to conclude the Q&A session. And finally, this is announcement from the company. So every year in December, on the 17th of December on Wednesday afternoon, we will be conducting the IR Day as usual. So Reko Diq, the copper and gold mine projects will be taken up. So we would like to talk about the Middle East business. That is the plan right now. So we definitely like to ask for your participation in the IR Day in December.

With that, we would like to conclude the 2025 Q1 results announcement for Komatsu Limited. Thank you very much for your participation today.