Mitsubishi Heavy Industries Aktie

This is MHI's CFO, Hiroshi Nishio. Before we begin today's earnings presentation, I would like to say a few words. Our deepest condolences go to those who lost their lives in the 2026 Kumamoto Earthquake and to their bereaved families. We also extend our heartfelt sympathies to everyone affected by the disaster and sincerely hope for a swift recovery in the affected areas. At present, the direct impact on MHI Group's operations and financial performance remains limited.

I will now go over the details of our Q1 FY 2026 financial results and the full-year earnings forecast, limiting myself to the main takeaways.

[AI Agent - Julia]

I am Julia, MHI Investor Relations' AI narrator. First, 2 items to keep in mind. The former Mitsubishi Logisnext was removed from MHI's consolidated base on May 1, 2026. Regarding the Q1 FY 2025 results shown here for comparison purposes, all figures related to the former Mitsubishi Logisnext have been reclassified in accordance with our accounting standards.

Next, as a result of organizational changes, which came into effect on April 1, 2026, the Logistics, Thermal & Drive Systems segment has been renamed Industrial Solutions and the Data Center & Energy Management department have been moved into this segment. Please note that the figures for Q1 FY 2025 have been adjusted retroactively to reflect these changes.

Please turn to Page 4, which provides an overview of the Q1 results. Order intake reached JPY 2,022.4 billion, driven by a significant increase in Energy Systems, particularly GTCC. As a result, the order backlog exceeded JPY 14 trillion, an increase of more than JPY 860 billion from the end of the previous fiscal year.

Revenue increased 16% year-on-year to JPY 1,194.2 billion. Business profit grew 65% year-on-year to JPY 159.6 billion with increases seen in all segments. Net income increased 97% year-on-year to JPY 134.6 billion due to an increase in business profit and the impact from continued depreciation of the yen.

Order intake, revenue, business profit and net income all reached record highs for our first quarter. Free cash flow was positive JPY 391.5 billion, and interest-bearing debt was JPY 519.8 billion.

I will now provide a more detailed discussion of our financial results. Please turn to Page 7. The 4 upper rows on this table show order intake, revenue, business profit and net income, which I just outlined.

The lower rows provide a breakdown of free cash flow, which again was positive JPY 391.5 billion. Operating cash flow reached positive JPY 284.5 billion, mainly driven by strong profit generation and continued booking of large advances received in GTCC and other businesses. Investing cash flow exceeded positive JPY 100 billion, primarily due to the sale of the former Mitsubishi Logisnext.

Please turn to Page 8, which shows our balance sheet. Total assets decreased by around JPY 120 billion from the end of the previous fiscal year to JPY 8,151.3 billion. The main reason for this decrease is that around JPY 550 billion of assets held for sale at the end of the previous fiscal year was reduced to 0, coinciding with the completed sale of the former Mitsubishi Logisnext. This was partially offset by an approximately JPY 350 billion increase in cash and cash equivalents arising mainly from higher advances received, which appear in the lower half of the table within the contract liabilities line item.

Interest-bearing debt remained at roughly the same level as the end of the previous fiscal year and net interest-bearing debt, which is interest-bearing debt minus cash and cash equivalents, was negative JPY 1,164.2 billion.

Please turn to Page 9, which breaks out year-on-year changes in business profit. Business profit rose by JPY 62.9 billion from JPY 96.6 billion during Q1 FY 2025, excluding the former Mitsubishi Logisnext. Of this increase, JPY 55 billion came from higher revenue and improved margins. Business profit increased significantly as we executed our extensive backlog, provided highly profitable aftersales services and enjoyed better margins at the time of order booking.

The positive JPY 9 billion in foreign exchange impact was due to the significant depreciation of the yen. The average rate used for revenue recognition dropped from last fiscal year's JPY 146 to the dollar to JPY 157 to the dollar.

Moving on, I will now discuss developments in order intake, revenue and business profit in each of our segments.

Please turn to Page 11. In the Energy Systems segment, order intake rose significantly in GTCC, Steam Power and Nuclear Power with total segment order intake up 56% year-on-year to a total of JPY 1,359.3 billion. GTCC continued to book high order intake in North America and Asia. Revenue grew 27% year-on-year to JPY 536.3 billion. Business profit jumped 80% year-on-year to JPY 101.3 billion, driven mainly by higher revenue and improved margins in GTCC and Nuclear Power.

Please turn to Page 12. In the Plants & Infrastructure Systems segment, order intake in Metals Machinery and Commercial ships increased significantly, with total orders rising 54% year-on-year to JPY 368.8 billion. Business profit increased 17% year-on-year due to higher revenue and business profit in Engineering, among other factors, which offset declines in Metals Machinery and Machinery Systems caused by lower revenue in Q1.

Please turn to Page 13. In the Industrial Solutions segment, order intake was strong in Engines for Asian markets and large chillers for Japan, resulting in a 19% year-on-year increase to JPY 193 billion. Segment business profit increased 146% year-on-year on the back of higher revenue in Engines and the depreciation of the yen.

Please turn to Page 14. Order intake in Aircraft, Defense & Space decreased significantly due to a high base effect from large orders booked in Q1 FY 2025, although order backlog remained high at around JPY 3,900 billion. Revenue and business profit rose by 10% and 13% year-on-year, respectively, due to steady execution of the extensive order backlog in Defense & Space as well as higher unit deliveries in Commercial Aviation.

Next, I will discuss the FY 2026 earnings forecast. Note that the situation in the Middle East has not had a significant influence on our financials so far, and our earnings forecast does not include impact from what continues to be an uncertain and evolving situation.

Please turn to Page 16. We have increased the full-year order intake forecast to JPY 7 trillion, raising the guidance for GTCC and Defense & Space by JPY 100 billion each. We have also increased the forecast for free cash flow by JPY 300 billion to JPY 600 billion. Revenue, business profit and net income remain unchanged from the previous forecast. Note that the business profit guidance of JPY 540 billion includes a risk buffer of JPY 20 billion for onetime expenses. The foreign exchange rate assumption is JPY 150 to the dollar and FX exposure on a business profit basis is $3.2 billion.

Pages 17 through 19 provide breakdowns by segment, but they cover information already provided, so I will omit an explanation here. Please refer to these pages as well as the appendix on Pages 20 through 23 as needed after today's presentation. This concludes my presentation.

This is CFO, Hiroshi Nishio again. Allow me to provide some additional detail on the JPY 55 billion contribution from changes in revenue and margin improvements appearing on the profit bridge. Breaking down this JPY 55 billion, JPY 17 billion came from changes in revenue, while JPY 38 billion was attributable to margin improvements. Of the JPY 38 billion in margin improvements, JPY 25 billion represented onetime gains recognized in Q1. Of this JPY 25 billion, JPY 15 billion was related to profits recognized following the finalization of the contract price for a large long-term plant construction project.

When work is accounted for using the percentage-of-completion method, while the contract price remains unsettled due, for example, to changes in work specifications, we do not recognize the gross profit attributable to the unsettled portion. Once the contract price is finalized, we recognize the related profit, including the amount attributable to progress made in prior periods. As a result, we recorded a onetime gain of JPY 15 billion in Q1.

In addition, we recognized approximately JPY 10 billion in aggregate gains from the sale of several power generation projects. The JPY 25 billion in onetime gains was already factored into our full year forecast. At the same time, we had expected the full year positive impact from changes in revenue and margin improvements to be approximately JPY 83 billion, but JPY 55 billion of this has already been recognized in Q1. This represents a very strong start to the year, and we believe the profit improvements we had initially anticipated are materializing earlier than expected.

Therefore, I personally believe there is a strong possibility that our full-year results will exceed the current forecast. That said, we are still only at the end of Q1. Going forward, we will review the situation and provide updated full-year guidance when we announce our first half results.

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

Hello, I am President Ito. I know you're quite busy. Thank you so much for coming.

I would like to begin my explanation. Allow me to outline our progress under the 2024 Medium-Term Business Plan, or 2024 MTBP.

First, I will provide an overview of FY 2025. In FY 2025, order intake, business profit, net income and cash inflow attained record highs. In addition, order intake increased primarily in our growing core businesses of Energy Systems and Defense, and the order backlog exceeded JPY 13 trillion. We are working to achieve a highly profitable business structure under our Innovative Total Optimization, ITO, initiative. Through various measures, we achieved our business profit margin and ROE targets 1 year ahead of schedule.

Next, I will discuss changes in our business environment. First, global political instability is intensifying. Awareness of security is growing not only in terms of national defense, but also in terms of economic security. In addition, the risk of supply chain disruptions is increasing due to the solidifying of economic blocs. Furthermore, as a result of long-standing globalization in pursuit of economic efficiency, the manufacturing bases are weakening in many countries.

Other issues threatening the functioning of society are emerging. These include: intensifying natural disasters, labor shortages, cybersecurity risks and aging infrastructure.

In other areas, technological innovation is accelerating. In particular, generative AI has evolved into autonomous operation agents, driving increased adoption of physical AI and automated manufacturing. Carbon neutrality initiatives are transitioning to a pragmatic approach, reflecting concerns over energy security and maintaining industrial competitiveness.

As a result of these changes in the business environment, MHI's potential contributions to solving societal issues are expanding. Some potential opportunities are shown in Items 1 through 6, and resilience is the common thread connecting these areas.

Regarding initiatives supporting the achievement of the 2024 MTBP. First, we will increase profitability by ensuring steady execution of our order backlog. Specifically, we will enhance our execution capabilities to deliver products and services reliably and on time. We will transform the company into a highly profitable business structure by implementing group-wide optimization. Moreover, we allocate the investment capacity generated through these initiatives to growth investments, accelerating the realization of reach expansion.

Finally, I will lay out our vision for long-term growth. We will enhance corporate value by establishing a virtuous cycle of high profitability and growth investments, a key management goal of ours. We will also accelerate business execution to stay ahead of continued revenue expansion. We will also aim to reduce lead times and increase throughput across all businesses by implementing vertical group-wide optimization.

To that end, we will strengthen both the quality and scale of our shared infrastructure platform and further increase resource utilization through our horizontal reach expansion initiative. We will enable earlier risk detection and faster issue resolution by sharing specialized technologies and expertise across businesses.

Changes in our business environment are expanding MHI's potential contributions to solving societal issues. We will seize these opportunities, achieving reach expansion through synergies which leverage MHI's shared infrastructure platform. This will be a critical factor in the management of our portfolio.

In particular, we will deploy growth investments with a long-term outlook. Going forward, we will lay out specific numerical targets and the financial strategy signed with this corporate strategy.

This page shows the agenda for today's briefing.

First, I will discuss our business environment. External environment is evolving rapidly and dramatically. We are seeing increasing awareness of national security, heightened risk of supply chain disruptions, a weakening of manufacturing bases, increasing cyber incidents, labor shortages and rapid advances in AI. While these changes bring undeniable risks, they also open the door to significant business opportunities.

Our strategy is to proactively seize these opportunities especially where we can help solve critical societal challenges, such as providing safety and security and ensuring stable energy supplies. Once again, the guiding principle here, the keyword here is resilience.

Next, I will outline our core management objective: achieving a virtuous cycle of a high profit structure coupled with investment for growth. A key enabler of this virtuous cycle is our ITO strategy, which stands for Innovative Total Optimization. To explain what ITO is, we have included a slide from last year's presentation.

Overall optimization means boosting productivity and profitability by strengthening collaboration across our organization. Reach expansion is about rapidly delivering new value to more customers and regions. By advancing these two pillars in tandem, we unlock powerful synergies that fuel the virtuous cycle of profitability and growth investment.

Let me illustrate the tangible impact of group-wide optimization using this slide. Please refer to the bar chart on the far left representing business A. The total height of the bar represents revenue and the upper segment after cost represents profit. Costs include value chains such as in-house production and purchasing areas with substantial room for improvement.

By leveraging digital and AI technologies as well as manufacturing automation, we estimate we can unlock several tens of percent of new profit in this way. This is what we refer to as vertical group-wide optimization, which is shown in the second bar chart.

Beyond that, optimizing value chains across multiple businesses offers more opportunities for improvement. By increasing the utilization of resources and in-sourcing, we can produce another several tens of percent of profit upside. This horizontal group-wide optimization is shown in the third bar chart to the right.

Finally, the rightmost graph illustrates how we can scale production to meet demand after these optimizations. Our goal is to apply this approach company-wide, building a robust high-profit business structure. There is about 300 themes that is being proposed by the businesses, and we are promoting this. We will allocate profits generated through group-wide optimization to growth investments, creating a self-sustaining virtuous cycle.

Our cash inflows forecast for FY 2026 has surged from approximately JPY 1.5 trillion in FY 2024 to JPY 2.6 trillion, a significant increase. While some of this include advances received so not all can be allocated to investments, it still represents a substantial boost in available cash versus initial assumptions under the 2024 MTBP. We will strategically deploy this cash into existing business areas, primarily our growing core businesses as well as to future business opportunities driven by reach expansion, thereby, achieving long-term growth.

The next slide highlights our shared infrastructure platform which will enable us to pursue the strategy.

To deliver on group-wide optimization and reach expansion, we will rely on our MHI's unique shared platform. This shared infrastructure platform includes technical design and manufacturing technologies, customer relationships, human capital, supply chains and digital and AI technologies. This platform underpins all of our businesses, creating powerful synergies as they grow together.

MHI excels particularly in large complex products and precision control systems operating under extreme conditions, and this slide outlines some examples of these synergies.

This slide maps out the areas into which we will expand our reach by leveraging our shared infrastructure platform. So we have the shared infrastructure and we have an open innovation that connects the global COE. In the middle, we have the existing business areas. On the top, we have the growing areas. The blue arrows in the diagram indicate the direction of reach expansion.

As I mentioned on the previous slide, our businesses are underpinned by the shared platform. By investing proactively in new business opportunities, we will expand into new business areas by leveraging our shared infrastructure platform.

To provide one example from Defense. As shown on the top photo, recently, our R&D center and business unit collaborated to develop a production prototype of a counter drone in just 3 months. This rapid innovation leveraged our core technology alongside mass production design and manufacturing expertise.

Our ability to outpace startups in speed and flexibility stems from a unique shared infrastructure platform and we can flexibly respond to market needs. In short, expanding our reach through synergies rooted in a shared infrastructure platform, this is the cornerstone of our portfolio strategy and a major driver of the reach expansion initiative.

Many of these new areas directly enhance resilience and align with emerging market needs, positioning us to generate several hundreds of billions of yen in new profits.

Now let me update you on the progress we have made towards our 2024 MTBP targets.

In our recently announced FY 2025 results, we achieved the 2024 MTBP targets for business profit margin and ROE 1 year ahead of schedule. Looking ahead, for FY 2026, we are aiming even higher, raising our business profit target from JPY 450 billion to JPY 540 billion. Furthermore, our order backlog stands strong at JPY 13 trillion, providing a solid foundation for continued growth. We are committed to delivering on these orders with the products and services in a timely manner.

The 2024 MTBP focuses on strengthening portfolio management across three key categories: ensure steady performance and achieve high profitability in growing core businesses, commercialize future growth areas and enhance businesses' competitiveness. While implementing ITO initiatives in all businesses, we are sharpening our focus on building a highly profitable business structure primarily in our growing core businesses.

In our future growth areas, we are shifting focus in line with societal needs. Accordingly, we are developing a growth strategy centered on resilience infrastructure, businesses that support the safety, security, energy stability and business continuity management of critical infrastructure.

The right side of the slide outlines main actions in each category, which I will detail next. First, I will discuss our efforts in the growing core businesses. With order intake rising, we are scaling production capacity while transforming these businesses into high-profit operations. I would like to explain this in more detail today.

To support this, we established a factory innovation center dedicated to boosting production capabilities. This center will pioneer the development of lead time reduction techniques such as optimized production planning, manufacturing automation and rapid adoption of cutting-edge technologies. AI and AM will also be fully utilized. And we will act as a hub disseminating these innovations, first, to the growing core businesses and across all of our businesses.

Next, I will introduce our initiatives in the GTCC business. At Takasago Machinery Works, our flagship facility for this business, over 1,000 productivity improvement ideas have been generated by our technical design and manufacturing teams. One notable example is reducing process changeover.

Previously, gas turbines were assembled in customer order sequence. But now, by grouping production by model type, we have significantly cut changeover time. This is just one of many initiatives to shorten lead times and boost throughput.

With unit orders rising, demand for hot parts will grow. So we are upgrading our precision casting facility, which is critical for producing these components while enhancing productivity.

Turning to the Defense business. We are leveraging IT and AI technologies to enhance productivity. Our new factory in the Nagoya area was designed using process optimization simulations, including automated transport robots which reduce changeover time during assembly. We are also deploying AI to improve inspection efficiency for critical parts during the manufacturing process, aiming to reduce lead times by 1/3.

In the Nuclear Power business, we are increasing production of spent fuel casks. This is what we will explain on this slide. These spent fuel casks are highly reliable products certified by the Japan Nuclear Regulation Authority, which require meticulous engineering and manufacturing.

To boost productivity, we are digitalizing engineering processes. Previously, expert designer engineers manually reviewed massive analysis data in the process of drafting technical drawings. Now advanced automated data linkages have cut this workload by 30%.

On the manufacturing side, improvements in automated welding and upgrades to testing equipment, which are previous bottlenecks have increased throughput and have increased annual capacity from 20 to 25 units.

Now let me highlight our efforts to expand personnel and deploy training programs in our growing core businesses. We plan to grow personnel to 33,000, a 1.3x increase over FY 2023, to manage recent high order volumes.

Key initiatives include, in GTCC, we are expanding facilities and education programs for on-site maintenance personnel at our global training center. These efforts incorporate efficient OJT, supported by remote monitoring technologies. In Nuclear Power, we are enhancing education for new hires through nuclear engineering seminars and VR training. In Defense, we have established a technical skill development center to upskill an increasing number of mid-career hires.

So we are also harnessing AI and digital technologies to preserve and transfer skills. VR technologies are supporting technical design work by enabling the efficient review of complex drawings.

In manufacturing, tacit knowledge is being codified into formal training materials, accelerating self-driven skills acquisition by younger employees. We are also deploying AR glasses on site to enhance work efficiency and facilitate the transfer of skills.

Moving to our future growth areas. We recognize the need to enhance the resilience of critical infrastructure and view this as a prime business opportunity. In the data centers area, we are working to commercialize products for both large cloud systems and distributed data centers offering enhanced security. In each areas, we are developing advanced cooling systems and high-security compliant data centers.

So S+3E, we want to aim to achieving this. We continue R&D, conscious of the economics of the solutions we aim to provide in this area. Specific examples of this are cost reductions in CO2 capture system through the application of modular design and offering ORC solutions for next-generation geothermal power projects.

Next, I will outline some examples of our efforts to enhance our businesses' competitiveness. In steam power, we have boosted profitability by shifting to an aftersales service-centric business model amid a sharp drop in original equipment volumes through structural reform that we conducted in the past years. We are leveraging steam power's platform to implement horizontal group-wide optimization, deploying human resources throughout the MHI Group.

More specifically, plant engineers are supporting large GTCC project execution. Manufacturing experts are handling the processing of large components in nuclear power, and engineers with experience in overseas plant projects are helping manage risk in the Australian frigate program in defense. Leveraging steam power's expertise in steam technologies, we are pioneering new areas in turbochargers and HVAC businesses, including waste heat recovery pumps.

Under our competitiveness enhancement initiatives, we are leveraging digital technologies to enhance aftersales services and profitability. Since 2020, service sales have increased by 1.9x. To provide some specific examples, I would like to introduce two.

First, the waste-to-energy plants businesses. Our integrated operation system, MaiDAS, has been developed. This combines combustion, AI and control technologies to automate operations. By doing so, the number of operators has been reduced from 12 to 8.

Next, our box-making machines business is leveraging AI during the 24/7 on-call support to analyze conversations with customers, provide suggested responses and show technical documents for rapid, accurate response.

Finally, I want to highlight our efforts to strengthen human capital across all of our businesses. To flexibly meet evolving societal and customer needs, we are enhancing training programs for manufacturing and digital talent, the backbone of MHI. We are expanding internal training programs for newly hired skilled personnel to transform them into immediate contributors.

Additionally, a community of specialists shares knowledge and best practices across divisions. Beyond developing digital talent, we are upgrading our digital and AI infrastructure, which has already resulted in JPY 15 billion of operational efficiency gains.

Finally, allow me to summarize today's presentation.

We will achieve our 2024 MTBP targets by strengthening our execution capabilities in order to reliably manage a high order backlog. In parallel, we transformed the company into a highly profitable business structure by implementing group-wide optimization.

Looking forward to the next midterm business plan, we will achieve a virtuous cycle of high profitability and growth investments, which is a key management goal of ours. In addition to group-wide optimization, we will deploy growth investments aimed at long-term customer value creation beyond existing frameworks as part of our reach expansion initiative. We will aim to achieve the step change growth by cultivating new business opportunities while leveraging a shared infrastructure platform to expand the reach to new areas.

This concludes my explanation. Thank you very much.

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

Hello, everyone. This is Eisaku Ito, President and CEO of Mitsubishi Heavy Industries. Thank you very much for taking time out of your busy schedules to join us today. Allow me to make a few brief comments on my assessment of our FY 2025 financial results as well as on our strategy for FY 2026.

Order intake in FY 2025 rose 20% year-on-year, reaching JPY 7.7 trillion. This growth was mainly driven by strong orders for GTCC in North America and Asia. Orders for large frame gas turbines increased significantly from 25 units last year to 35 units in FY 2025. Revenue was around JPY 5 trillion, supported by steady growth in GTCC, Nuclear Power, and Defense. Business profit increased year-on-year in all segments to a total of JPY 432.2 billion. Based on these results, I have the utmost confidence in our ability to achieve our 2024 medium-term business plan targets while realizing even greater growth going forward.

Turning now to our operating environment. Demand for data centers is rising due to advances in AI technology, which in turn is driving increased electricity demand. Additionally, carbon neutrality-related policies around the world are moving in a more practical, achievable direction. Contrastingly, geopolitical risks, particularly in the Middle East, have emerged, leading to ongoing concerns about global supply chain instability and rising inflation. Within this uncertain environment, MHI will actively pursue business opportunities in areas that contribute to solving societal issues while carefully managing risk.

Next, I will share some highlights from the ITO initiatives we pursued in FY2025, then outline our strategy for FY 2026. Aiming to unleash our growth potential in the medium to long term, we are working to implement ITO, which is supported by the 2 pillars of group-wide optimization and reach expansion. In FY 2025, the ITO concept took root throughout the organization, generating a myriad of synergies.

To provide one example, we won a construction contract for the next-generation general purpose frigate program in Australia after around 8 months of negotiations. During this process, we deployed personnel with experience working on plant projects overseas from the initial phase of contract negotiations. By building an organization that leveraged these synergies, we were able to conclude the contract smoothly. In GTCC, we actively deployed many engineers, including those from facilities other than Takasago Machinery Works, our main base of operations for the business. This has increased our project execution capabilities, enabling us to meet booming demand in the market.

In accordance with the reach expansion pillar of ITO, we have launched initiatives to create new customer value across all business areas. To that end, we are enhancing our efforts in markets and regions with strong growth forecasts by collaborating with overseas partners. One success story is our partnership with a Turkish construction company, which recently led to our booking a large plant project in Turkmenistan. We are also preparing to expand sales of cooling systems in the U.S. and India.

Moreover, in GTCC and several other businesses, we are actively deploying capital expenditures to increase manufacturing capacity as well as R&D investments to accelerate technological innovation. Through these efforts, we will respond to rising demand while increasing competitiveness. optimization of our portfolio of businesses is another area of focus for us.

As was the case with our decision to sell Mitsubishi Logisnext, we are working to optimize the management of our businesses by considering strategic fit and synergies, including the option of selling businesses to their best owners. Through this approach, we aim to maximize corporate value by directing management resources toward areas with strong growth potential. By implementing these measures, we are targeting JPY 540.0 billion in business profit in FY2026, a figure which significantly exceeds our initial 2024 medium-term business plan goal of JPY 450.0 billion or higher.

In closing, I will provide more details on these initiatives and our corporate strategy at the 2024 medium-term business plan progress briefing scheduled for the end of May. We hope to see you there and appreciate your continued support and understanding. This concludes my presentation.

Continuing on, we will now go over the details of our FY 2025 financial results and the FY 2026 earnings forecast, limiting ourselves to the main takeaways.

[AI Agent - Jiro]

I am Jiro, MHI Investor Relations' AI narrator. First, a few notes. As indicated at the bottom of this page, in accordance with our accounting standards, the figures for order intake, revenue and business profit exclude those related to the former Mitsubishi Logisnext. Also, assets and liabilities directly related to that business are grouped together under assets and liabilities held for sale.

Please turn to Page 4. Order intake, revenue and business profit are as outlined during Ito's presentation. Net income reached JPY 332.1 billion, up 35% year-on-year, marking a new record high alongside business profit. Free cash flow was strong at positive JPY 893.4 billion, and interest-bearing debt decreased to JPY 515.7 billion. Order backlog exceeded JPY 13 trillion, up around JPY 3 trillion from the end of the previous fiscal year. Please refer to Page 31 for a breakdown by segment.

Pages 6 to 8 provides some highlights on our 3 growing core businesses, starting with GTCC. As shown in the bar graph at the bottom left, global demand for gas turbines in CY 2025 was around 100 gigawatts, a significant increase from the previous year on the back of the strong demand. We booked orders for 35 large frame gas turbines in FY 2025, achieving a record high for order intake. The graph on the right shows revenue, which has been steadily rising, both in original equipment as well as services, supported by growing order intake over the past few years. Revenue is expected to increase further in FY 2026.

Page 7 shows some highlights in Nuclear Power. In FY 2025, order intake rose in all main business areas, including Japan light water reactors, nuclear fuel cycle facilities and development work on demonstration reactors utilizing advanced technologies. As a result, revenue grew significantly year-on-year. Nuclear Power revenue, which is shown in the pie chart at the bottom left, has trended around JPY 300 billion in recent years. Revenue is expected to exceed JPY 400 billion going forward.

Page 8 covers Defense & Space. Order intake declined year-over-year in FY 2025 due to the booking of several large projects during the previous fiscal year. That said, we still achieved relatively high order intake, mainly thanks to an order for the Australian frigate program. Japan's defense budget for FY 2026 is around the same size as FY 2025. So we anticipate high order intake will continue. Revenue rose 38% year-on-year on the back of a surge in order intake over recent years. We expect revenue growth to continue in FY 2026.

Next, I will provide a more detailed explanation of our financial results. Please turn to Page 11, which shows our balance sheet. Total assets increased by around JPY 1.6 trillion to JPY 8,269.7 billion from the end of the previous fiscal year. Shown on the right, contract liabilities, that is, advances received rose significantly. This led to an increase in cash and cash equivalents, which appear on the left under other current assets. Also on the right, equity grew substantially due to higher net income, pension asset valuation gains and the weaker yen, among other factors.

Please turn to Page 13, which shows our cash flows. Free cash flow reached a record high of JPY 893.4 billion, supported by EBITDA of JPY 553.7 billion and large advances received booked in GTCC and other businesses. We expect working capital to increase during FY 2026 as we work to execute our extensive backlog.

Please turn to Page 14. This graph outlines factors which caused year-on-year changes in business profit. Business profit rose by JPY 77.2 billion from JPY 354.9 billion during FY 2024, excluding Mitsubishi Logisnext. Of this increase, JPY 184.0 billion came from higher revenue and improved margins. Strong backlog execution and the provision of highly profitable aftersales services resulted in this item significantly exceeding the initial target of positive JPY 134.0 billion.

Moving on to the negative factors. An American company in our Industrial Power Solutions business, which we acquired during FY 2023, recognized JPY 30.0 billion in goodwill impairment losses in accordance with our accounting standards. Nonetheless, we will continue to focus on our data center business, which was the strategic rationale for acquiring that company and which remains one of our future growth areas. Business profit decreased by JPY 56.0 billion due to the high base effect of large gains realized in FY 2024 from the sale of some land at our Yokohama Dockyard and Machinery Works facility.

Moving on, I will now discuss developments in order intake, revenue and business profit by segment. Please turn to Page 17. In the Energy Systems segment, order intake rose significantly in GTCC and Nuclear Power with total segment order intake up 50% year-on-year to JPY 3,936.7 billion. GTCC continued to book high order intake on the back of strong demand for power generation systems, primarily in North America. Revenue grew 13.6% year-on-year to JPY 2,062.6 billion. Business profit rose 30% year-on-year to JPY 267.2 billion, driven mainly by higher revenue and improved margins in GTCC and Nuclear Power, which offset JPY 30.0 billion in one-time losses in Steam Power.

Please turn to Page 18. In the Plants & Infrastructure Systems segment, high order intake in Engineering, including a fertilizer plant booked in Turkmenistan, offset a dip in orders in Metals Machinery and Machinery Systems caused by a high base effect from large projects booked in the previous fiscal year. Business profit rose more than 40% year-on-year to JPY 84.1 billion, driven by improved margins, primarily in Metals Machinery and Machinery Systems.

Please turn to Page 19. In the Logistics, Thermal & Drive Systems segment, revenue declined due to fewer units sold in Turbochargers and HVAC. Contrastingly, business profit increased on the back of higher revenue in engines, primarily in Asia and the resolution of a supply chain disruption that occurred in Turbochargers during the previous fiscal year.

Please turn to Page 20. Order intake in Aircraft, Defense & Space decreased due to a high base effect from several large orders booked during the previous fiscal year. However, we were still able to achieve strong order intake performance due in part to the booking of the Australian frigate program. Revenue rose 35% year-on-year and business profit increased by over 50% due to steady execution of the extensive order backlog in Defense & Space.

Next, I will discuss the FY 2026 earnings forecast. Following the organizational changes made on April 1, the Data Center and Energy Management Department was moved to the Logistics, Thermal and Drive Systems segment, which has been renamed the Industrial Solutions segment. Moreover, this earnings forecast does not include impact from the uncertain and evolving situation in the Middle East.

Please turn to Page 22, which shows the forecast for order intake, revenue, and business profit. We are guiding JPY 6.8 trillion in order intake. Although order intake is expected to decline due to a high base effect from large projects booked in FY 2025, such as a project for Taiwan Power Company in GTCC, construction work on nuclear fuel cycle-related facilities in Nuclear Power and the Australian frigate program in defense. We expect order backlog will remain high. Business profit is expected to rise 25% year-on-year to JPY 540.0 billion, exceeding FY 2025's record high. ROE is projected to hit our 2024 medium-term business plan target of 12% and free cash flow is guided at JPY 300.0 billion. The full year dividend is expected to increase by JPY 4 to JPY 29 per share.

Pages 23 through 28 provide more details about the earnings forecast, including information on each segment and the profit bridge for FY 2026. Supplemental data is provided in the appendix, which starts on Page 29, but please allow me to omit a detailed explanation here. This concludes my presentation.

Thank you very much for attending this meeting. On my side, I would like to explain about the second quarter results and the full year outlook and an update on [indiscernible] management policy that [indiscernible] on May 28. Order intake for the fiscal year 2025 Q2 increased year-over-year to JPY 3.3 trillion. Order backlog was JPY 11.5 trillion. This was because was [indiscernible] North America market, the largest market in the world. Another reason was this result is that we were able to receive orders for a very large [indiscernible] growth businesses such as Energy Systems and Defense with steady growth in the Plants & Infrastructure business, reaching JPY 2.1 trillion. increased [indiscernible] increased slightly year-over-year to JPY 170 billion. Outlook for the fiscal year '25 order intake is JPY 6.1 trillion.

We think we'll be able to recover the impact coming from Mitsubishi Logisnext, which we made an announcement on September 30. The major reason behind this is that we anticipate that the Energy business is going to increase by JPY 1 trillion compared to the initial guidance. The outlook for business profit is unchanged at JPY 390 billion. Current business environment is unchanged. We think that robust order intake will continue mainly in growth businesses. As for business profit, our basic [indiscernible] initiatives that we are conducting. Going forward, to link this robust order intake to profit, more than ever, we will deploy resources in a focused manner such as adjusting risk and accelerate initiatives for group-wide optimization.

Next, I will explain about a new management policy that we announced this May. Our management objective is to realize a virtuous cycle of high profitability and growth investments. To achieve this objective, we are committed to engage in group-wide optimization and scope expansion with unprecedented speed. I will update about these initiatives.

First, about focused resource deployment, which is one aspect of group-wide optimization. Focus deployment experts in a focused manner and respond speedily. For example, in GTCC, to securely answer strong demand, we are going forward to increase production volume by 30%. We are not only talking about CapEx or human resource recruitment. This is an initiative that we are engaged concurrently to improve productivity such as shortening lead time. We are putting priority in deploying internal experts to realize this objective.

For Defense business on August 1, the Australian government announced that it has selected our company [indiscernible] for its next-generation general purpose free [ gate ] program. To finalize the contract, various efforts are required, including coordination with the Japanese government and the companies involved in [indiscernible] construction as well as international contract negotiations with the Australian government. Accordingly, we are allocating internal resources to support this project. Regarding domain expansion, since the specific initiatives involve sensitive information closely tied to the mid- to long-term growth strategies of each business unit, we will refrain from providing the detailed explanations today. We will share more when the timing is appropriate for public disclosure. As for comprehensive portfolio management for the entire company, each business unit formulates and execute its own mid- to long-term growth scenario. At the same time, decisions on where to prioritize resource allocation are made based on management judgment.

As announced on September 30, we review our capital relationship with Mitsubishi Logisnext. This decision reflects the approach to portfolio management. Based on the last month's Japan-U.S. Summit meeting, I'd like to briefly touch on our business opportunities in the U.S. Our company has long been active in the U.S. market, operating multiple manufacturing and service facilities, including those for GTCC systems and steelmaking machinery. Our sales to the U.S. last year totaled JPY 1.1 trillion, underscoring the importance of the U.S. market to our business. We will continue to prepare thoroughly as a manufacturer to respond to business opportunities in the states.

Specifically, we aim to [ compute ] by supplying equipment and providing services, primarily energy to meet the expectations of our U.S. customers. To achieve our targets for FY 2025 and the 2024 midterm business plan, we will steadily advance the initiatives currently underway. As the pace of change in the business environment is expected to accelerate further, we shall strengthen our ability to respond swiftly to emerging [indiscernible] of change. We shall further accelerate our efforts in innovative portal optimization to ensure robust -- allow me to move to CFO, Hiroshi Nishio's presentation on the financial results. Please go ahead.

I would like to give you some points utilizing our presentation material. Please look at Page 3. So in terms of the numbers that we're going to use in this presentation, I would like to give you some points. On September 30, we announced about a plan to transform Mitsubishi Logisnext, we're going to call ML afterwards. With this, basically, order intake revenue, business profit excludes the numbers of ML A detailed [indiscernible] categorization of the numbers are in Page 29. Please refer to that slide as well. In terms of the balance sheet, for the total numbers, it includes ML, but there is an additional line for both assets and liabilities categorized as assets or liabilities held for sale. Please take notice of this matter. Then I will talk about the numbers.

Please turn to Page 6. These are the major financial results. The order intake revenue, business profit, Ito has mentioned already at the beginning. With the net income, it is JPY 114.9 billion year-over-year, it increased by 7%. So this is the highest number for the second quarter results. On the top, [indiscernible] free cash flow, JPY 151 billion. This is in the black. Interest-bearing debt, it is JPY 607.7 billion. Although it is not shown on this page, in terms of order backlog, it is JPY 11.5 trillion. It has increased by JPY 1.2 trillion from the last year-end.

Turning to Page 10. This is about the balance sheet. Total assets is JPY 7 trillion -- over JPY 7 trillion. One point I want to make is that on the lower side, on the liability side, the second line, there is a line called contract liabilities. This is advanced payment. This increased by JPY 260 billion substantially from the year-end last year. This is due to the increased order intake of GTCC. This is the reason why the free cash flow is JPY 151 billion on the positive in the second quarter.

And going to Page 11. This is the profit base comparing business profit from the previous year. So starting at JPY 188.4 billion last fiscal year, same quarter, deducting ML portion and then going to JPY 168 billion. So this will be the start of apple-to-apple comparison against last year to this fiscal year. So first of all, there's a JPY 76 billion improvement coming from changes in revenue margin improvements, showing that various initiatives improvements have steadily taking results in all segments. On the other hand, if you look to the right, this is a change in onetime expenses. It's minus JPY 30 billion. So in the Steam Power business, about JPY 30 billion provisions were booked for the one-off expenses. Out of this JPY 30 billion, JPY 20 billion is for the South African project.

I would like to verbally explain the background about this South African project. This is a project that we have inherited when the thermal business was integrated with Hitachi. Construction has continued for more than 10 years and operation has started by phases over the years. In September 2025, the last unit # 12 unit has started operation. We are still consulting with the customer in terms of how to share the cost that has been incurred due to the construction phase at the customer side. So this provision was made for this second quarter for accounting purposes.

So this was an unfortunate one-off cost of JPY 30 billion was provided for. So moving on to Page 19. For all the segmentation [indiscernible] please refer as per your convenience. So talking about the earnings forecast, starting from Slide 19. This is the yearly forecast for the year 2025. The order intake is going to be revised upwards to JPY 6.1 trillion. Revenue remains at JPY 4.8 trillion and profit from business activities is unchanged at JPY 390 billion. The free cash flow remains 0. The assumption of the exchange rate is JPY 145 billion to [indiscernible] and the exchange rate sensitivity is JPY 1.6 billion.

For the annual forecast, we have provided -- we have been providing the segment information starting from 21 for the Energy Systems segment. The order intake for the Energy Systems segment has been revised upward because of the stronger performance in GTCC from JPY 2.2 trillion to JPY 3.2 trillion. The business profit remains unchanged at JPY 240 billion. However, last time, we have provided for JPY 20 billion risk buffer for onetime expenses that was included. But this time, in Q2, the one-off expense has already been recognized in JPY 30 billion, so that no buffer is incorporated for in the second half. And down below is the Plants & Infrastructure. The project execution is going quite steadily so that the business profit has been revised upward from JPY 60 billion to JPY 70 billion.

And moving to Slide 22, Logistics, Thermal and Drive Systems. To a slowdown in sales of turbochargers and HVAC units, order intake, revenue and business profit have all been revised downward. And down below is for the Aircraft, Defense and Space just remains unchanged and the yearly total, that's all that I mentioned.

And just for your information on Slide 23. And here, we show the Defense business [indiscernible]. And this is the track record from 2018. The order intake for the year 2025 seems to be down compared to the year before, and there are a lot of questions coming regarding that so that we are explaining the reason why. Year '23, '24, the level has been quite high. So compared to those 2 fiscal terms, the current fiscal year is JPY 1.2 trillion, which is down. However, compared to the normal level, it's still quite high level.

And for your reference as well on Page 26, is the Energy segment on the right below, the aftersales service revenue ratio is shown.

And also on Page 28 is the business portfolio optimization history, just for your reference.

So now that's all from myself. Thank you very much.

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