SUMITOMO HEAVY INDUSTRIES Aktie

Hello, everyone. I am Watanabe, President and CEO. Thank you very much for joining us today. I will explain the financial results announced today and the progress of the Medium-Term Management Plan.

Today's agenda will be shown here. First, here is a summary of the FY 2025 financial results. Orders were JPY 1,158.4 billion. Net sales were JPY 1,066.9 billion. Operating profit was JPY 51.5 billion, and ROIC was 4.2%. As for the market environment, orders increased in all segments with a gradual recovery in Japan and steady growth in the U.S. However sales operating profit decreased in the Industrial Machinery and Logistics and Construction segments due to a small backlog of orders received in the previous fiscal year.

Here is a summary of the financial results. Current profit was JPY 30.9 billion, an increase of over JPY 23 billion, partly due to a decrease in the large extraordinary loss in the previous fiscal year.

This is an analysis of changes in operating profit. The decrease was mainly due to the impact of lower sales in the Industrial Machinery segment and higher SG&A expenses. In the others there was an improvement in gross profit margins in each business segment.

Here are the financial results by segment. I will explain in more detail later, so I will skip this page.

This is balance sheet. Total assets amounted to JPY 1,320.5 billion.

Here is cash flow statement. Cash flow from operating activities improved significantly due to improvements in working capital. As a result, free cash flow has turned positive.

Next, I will explain the performance forecast for fiscal year 2026. We abolished the business unit system as a reorganization in January of this year. Instead, we established an SBU system. Here, we show the details, so please have a look at it later.

This is performance forecast summary. Orders are expected to be JPY 1,120 billion, net sales to be JPY 1,090 billion, operating profit to be JPY 60 billion and ROIC to be 4.8%. In the Energy & Lifeline segment, we expect a decrease in orders due to the impact of large orders received in the previous fiscal year, but we expect an increase in sales and profit.

For the overall forecast, current profit is expected to be JPY 34 billion. ROE is planned to be 5%. The dividend per share for fiscal year 2025 is JPY 125 per share as planned. For FY 2026, we plan to pay JPY 145.

Here is a comparison of operating profit with the previous fiscal year. In addition to the sales increase in the others, effects from personnel measures, which will be discussed later also been factored in.

This is performance forecast by segment. The details will be explained on the following pages and beyond.

From here, I will give you an explanation by segment. First is the Mechatronics segment. In FY 2025, orders for gear reducers, motors and inverters and cryocoolers all increased. Net sales and operating profit increased in line with the increase in orders. As for the outlook for fiscal year 2026, we expect orders for gear reducers and motors and inverters to increase due to strong demand in Europe and the United States. Net sales and operating profit are expected to increase due to the increase in orders.

Here is the Industrial Machinery segment. In fiscal year 2025, orders for plastics machinery increased mainly due to a rush of orders before the price revision. Net sales decreased partly due to a small backlog of orders for semiconductor manufacturing equipment and operating profit also decreased due to lower sales.

As for the forecast for fiscal year 2026, we expect an increase in orders for semiconductor manufacturing equipment, assuming the resumption of investment. On the other hand, plastics machinery will see a decrease, taking into account the reaction to the previous year's increase. As a result, the segment will see a slight decrease in orders. We expect an increase in net sales due to an increase in semiconductor manufacturing equipment, and we also expect an increase in operating profit, taking into account factors such as the increase in sales and the effects of structural reorganization for plastics machinery.

This is about the Logistics & Construction. In fiscal year 2025, orders for hydraulic excavators increased mainly due to a rush of orders before the price revision in Japan. In addition, orders for industrial cranes also increased, mainly for shipbuilding and steel product applications. Net sales decreased due to a small backlog of orders for hydraulic excavators in the previous fiscal year and operating profit also decreased due to a drop in hydraulic excavator sales and an increase in the allowance for doubtful accounts for hydraulic excavators in the overseas market as well as a decline in highly profitable industrial crane projects.

As for the forecast for fiscal year 2026, orders are expected to increase due to increases in hydraulic excavators and mobile cranes. On the other hand, industrial crane orders are expected to see a pullback following last year's increase and the segment orders will remain at the same level as the previous fiscal year. Net sales will increase due to higher orders for both hydraulic excavators and mobile cranes and operating profit will increase due to higher sales.

Lastly, in the Energy & Lifeline. In fiscal year 2025, orders increased significantly due to increased orders for biomass power generation facilities in Japan and Europe as well as for water treatment equipment and marine structures. Net sales decreased due to a small backlog of orders, but operating profit increased due to improved project profitability despite lower sales and lower development expenses for LAES, which had been borne until the previous fiscal year.

For fiscal year 2026, we expect a decrease, partly in reaction to the large biomass power generation projects in the previous year. We expect net sales and operating profit to decrease, taking into account the business transfer and other factors.

From here, I will explain the progress of the Medium-Term Management Plan 2026. There is no change in the basic policy and key framework. However, as you are aware, we have reviewed the figures of our Medium-Term Management Plan in February 2025. We recognize that improving the profitability of our core businesses and semiconductor equipment business is an urgent issue.

The changes are shown here. Changes from the first half of 2025 include the continuing economic stagnation in Europe, the delayed recovery of semiconductors other than AI in the semiconductor business and a decrease in shipments of hydraulic excavators to both the U.S. and Japan. As a result, the actual results for FY 2025 were JPY 8.5 billion lower than the revised plan.

For fiscal year 2026, we are now forecasting JPY 60 billion as it is difficult to achieve the revised target of JPY 80 billion in operating profit. We have a strong sense of urgency regarding this situation. As I will explain later, we have made a decision to implement structural reorganization for our core businesses, including personnel measures and to strengthen our management foundation for the future.

This is a summary of our structural reorganization. The 3 main items are structural reorganization of our core businesses, business portfolio reformation and sales of assets. With regard to the structural reorganization of our core businesses, we will incorporate personnel measures. Although we have achieved a certain level of improvement in earnings from gear reducers and plastics machinery, we will further accelerate the speed of this improvement and ensure it.

Also, in the Construction Machinery business, where sales recovery has lagged, we will rebuild a more robust structure. We will combine these efforts with the acceleration of portfolio reformation to steadily improve ROIC and ROE.

Here is the progress of KPAs on strategic issues. Progress in earning capacity improvements in the gear reducers, electric control and plastics machinery businesses is generally in line with plans. However, progress in improving earning capacity and capital efficiency has been slow. In light of this, we have decided to implement structural reorganization, including the personnel measures, as I mentioned earlier.

This is about capital policy. In response to the downward swing in operating cash flows, we plan to curb capital investment and sell business assets to strike a balance while adhering to our original policy of returning profits to shareholders, aiming for a DOE of 3.5% or higher.

Here is the status of investment execution. Capital investment is being restrained.

This is the business portfolio. We will move forward with the business portfolio based on the classifications shown here.

This page shows the status of progress. We are proceeding with structural reorganization of underperforming businesses as well as the reorganization of businesses whose strategies need to be rebuilt. In addition, we are making progress on measures to strengthen each of our key investment areas.

Here is the growth and the status of progress in the key investment areas. In the robotics and automation field, we expect a certain level of growth in line with our plan. On the other hand, in the semiconductor field, the semiconductor equipment business has been severely affected partly due to the delayed recovery of the market and has not yet achieved its goal. However, we have received strong inquiries for the laser annealing equipment of the former LASSE, which we acquired, and we are in the process of adding production capacity to respond to these inquiries.

This page shows the progress in low-profit businesses. The gear business, electric control business and plastics machinery business have been progressing as planned. We will build a more robust structure by implementing personnel measures, including for the hydraulic excavator business, which has not yet achieved its goal.

This is the status of reforms in businesses whose strategies need to be rebuilt. As separately disclosed, the company has decided to transfer 2 businesses as part of its portfolio reformation. As we indicate, steam turbine and process pumps and then parking systems are subject to transfer.

From here, I will explain the status of each segment. First is the Mechatronics segment. The target profit has been revised downward. However, in the gear business, consolidation and price revisions are underway and profitability is improving. The electrical control business is also growing. In the area of semiconductor components, we are expanding our business with a development center in the U.S., which was established last year. In addition, in the area of gear business, we are further strengthening our installation base business by utilizing Riverside Spline & Gear, a U.S. company we acquired last year.

This is about the Industrial Machinery segment. The target profit has been revised downward significantly. In the semiconductor manufacturing equipment market, ion implanters have been struggling due to sluggish demand. However, we are in the process of enhancing our production system for laser annealing equipment for cutting-edge semiconductors in light of strong inquiries from major customers. In the plastics machinery business, we have made progress in model consolidation, but we are now considering additional measures to deal with the decline in demand in Europe.

This is about the Logistics & Construction segment. The target profit has been revised downward here as well. We have made some progress in our key investment areas by increasing the number of staff at a development center for this segment and exhibiting new products such as electric hydraulic excavators at trade shows in response to the future shift to electrification and automation.

Lastly, this is about the Energy and Lifeline. The target profit has been revised upward. In the area of carbon neutrality and resource recycling, progress has been made in demonstrating carbon capture technology, biomass gasification and the start of demonstration operations at LAES.

Here, we have shown 2 examples of key initiatives. In the semiconductor-related area, we have long been talking about strengthening collaboration between ion implanters and laser annealing equipment. For laser annealing equipment, in particular, there are strong inquiries for cutting-edge semiconductors, and we are making a company-wide effort to increase the production capacity.

In the area of industrial cranes, based on the shipbuilding industry revitalization road map formulated by the government, demand for cranes for the shipbuilding field is expected to increase. We are currently considering the expansion of production capacity, and we will further increase sales on orders received.

The following pages are for reference purposes only and include figures by strategic business unit or SBU, which will constitute a segment from this time onward. That is all from me.

Hello, everyone. I am Shinji Shimomura, President of the company. Thank you very much for participating in today's financial results briefing. The company announced its financial results for the second quarter of fiscal year 2025 today on the Tokyo Stock Exchange. The following is a description of its contents.

Here is an outline of today's explanation. I'll explain the financial summary for the second quarter of fiscal year 2025 and our forecast for fiscal year 2025. Then I'll discuss the progress of the Medium-Term Management Plan 2026.

First, let's take a look at the overview of the second quarter of the fiscal year 2025 financial results. In terms of the market environment, Japanese capital investment and exports are showing a moderate recovery trend. However, the rebound in the semiconductor market continues to remain stagnant. In overseas markets, the U.S. has been performing steadily in the short term and the recovery trend has been observed in Europe, but economic stagnation persists in China.

Under these circumstances, during the second quarter of fiscal year 2025, the company received orders totaling JPY 535.5 billion, achieved net sales of JPY 494.6 billion and generated operating profit of JPY 21.7 billion. Compared to the same period of the previous year, orders increased across all segments, which can be attributed to a general recovery in demand while orders for semiconductor-related products decreased. Net sales increased in Mechatronics, but decreased in Industrial Machinery and Logistics & Construction segments due to a smaller old backlog. Operating profit decreased due to a decline in sales.

Here is an outline of our results. With operating profit decreasing from the previous year, the resulting current profit was JPY 12.4 billion. Next, we have a comparison of operating profit with the previous fiscal year. While other items were positive, the decrease in sales, foreign exchange difference and sales and general administrative expenses were negative factors, resulting in a profit decline of JPY 11.7 billion.

Here are the results by segment. Details of each segment will be explained later. Next is the balance sheet. Total assets are JPY 1.237 billion. Next is the cash flow statement. Although net profit decreased compared to the previous fiscal year, free cash flow amounted to JPY 15.8 billion due to a decrease in working capital.

Next, I will explain the earnings forecast for fiscal year 2025. The forecast for fiscal year 2025 has been revised to orders of JPY 1.1 trillion, net sales of JPY 1.05 trillion and an operating profit of JPY 50 billion. Compared to the figures announced in February, orders will decrease by JPY 30 billion, net sales by JPY 40 billion and operating profit by JPY 10 billion. Orders will decrease mainly in Industrial Machinery and Logistics & Construction due to the slow recovery of the semiconductor-related and hydraulic excavator markets.

As a result of the decrease in orders, sales and operating profit will also decline, mainly in Industrial Machinery and Logistics & Construction. An ROIC for fiscal year 2025 is assumed to be 4.1%, and the forecast for dividends is unchanged from JPY 125 per share.

This is a comparison of operating profit with the previous fiscal year. Compared to the previous forecast, the decrease in sales is a negative factor. The U.S. tariffs are expected to mainly impact the Logistics and Construction and Mechatronics segments. Although we will implement measures such as price pass-through, we have factored in an impact of approximately JPY 2 billion.

Next, we have our performance forecast by segment. Each segment will be explained in detail starting on the next page. I will now explain by segment. First, Mechatronics. Orders in the first half of fiscal year 2025 increased for gear reducers due to a recovery in demand in Japan and overseas and for motors inverters following the completion of inventory adjustments by European customers. Both sales and operating profit increased due to an increase in orders.

In fiscal year 2025, while demand for gear reducers is expected to remain steady, continued delays in customer investment in semiconductor components will lead to a decline in orders and sales compared to the previous forecast made in February. Operating profit will increase mainly due to lower expenses from structural reorganization, et cetera.

Now let's turn to Industrial Machinery. In the first half of fiscal year 2025, orders and sales of plastics machinery increased due to a recovery in demand, particularly in the electrical and electronics sector in China, but operating profit decreased due to a downturn in Europe. In other businesses, demand for semiconductor manufacturing equipment declined, while orders for other models, including those in the advanced medical devices field, increased.

Sales and operating profit declined due to a smaller old backlog for semiconductor manufacturing equipment. In fiscal year 2025, orders, sales and operating profit will all decline due to the slow recovery of the semiconductor manufacturing equipment market.

Next is Logistics & Construction. In the first half of fiscal year 2025, there was a recovery in demand for hydraulic excavators in both Japan and North America, which had previously been stagnant and orders increased. Sales and operating profit decreased in both Japan and North America due to the lower number of orders in the previous fiscal year.

In other businesses, orders for mobile cranes were comparable with the same period of the previous year, but sales and operating profit increased due to the old backlog. For industrial cranes, while the market remained firm and both orders and sales increased, operating profit declined due to a decrease in high-margin projects. In fiscal year 2025, while demand for industrial cranes remains firm, orders, sales and operating profit are projected to decrease due to the slow recovery of the market for hydraulic excavators.

Finally, let's look at Energy & Lifeline. In the energy plant business, in the first half of fiscal year 2025, orders increased due to a biomass power generation project received in Europe. Although sales decreased due to a smaller old backlog, operating profit increased, thanks to improved profitability. In other businesses, orders increased for water treatment equipment and offshore structures. Sales and operating profit also rose due to a healthy old backlog. In FY '25, orders and sales are expected to increase due to strong demand in general, especially for energy plants and operating profit is also expected to increase due to higher sales and improved profitability.

Next, we will discuss the progress of the Medium-Term Management Plan 2026. Our basic policy in the Medium-Term Management Plan 2026 is to develop a robust entity. We are also implementing basic strategies from both corporate and segment perspectives for the following 3 priorities: improve profitability, enhance capital efficiency and strengthen new business exploration. Although our basic policy remains unchanged, we revised our plan in February 2025 due to the current downward swing in our current performance caused by changes in the business environment and delayed improvement in the profitability of our core businesses.

To begin with, here are the changes in the business environment and the outlook for the Medium-Term Management Plan 2026. In fiscal year 2025, operating profit is expected to decline approximately JPY 10 billion from the revised plan due to a marked decline in the semiconductor field. Although the situation remains challenging, we aim to achieve our FY '26 targets by steadily implementing key initiatives to strengthen the earning capacity of core businesses, portfolio reformation and enhancing our semiconductor business in addition to anticipating an increase in demand driven by a recovery in the semiconductor market.

Next, I will discuss key initiatives. To bridge the gap between our ideal state in 2030 and the current situation, we aim to accelerate the implementation of the key initiatives shown on this slide to restore our profitability. To enhance the earning capacity of our core businesses, we will improve operating profit in the gear business, expand orders in the Electric Control business segment, improve operating profit in the plastics machinery business, increase orders in the hydraulic excavator business and implement structural reorganization in our European operations.

In promoting business portfolio reformation, we will accelerate portfolio management. To strengthen our semiconductor-related business, we will reinforce synergies between our ion implanters and laser annealing equipment while expanding business in Europe and the U.S. by leveraging LASSE's customer channels, which is a French company engaged in the semiconductor manufacturing equipment business that we acquired in 2025.

With respect to strengthening the earning capacity of our core businesses, we are focusing on the gear business, Electrical Control segment, plastics machinery and hydraulic excavator business. Each business segment is promoting improvement initiatives with operating margins or order volume as a key KPI and all are generally progressing as planned, thanks to steady structural reorganization.

In European business, Lafert and Demag were affected by the prolonged economic downturn and SFW was impacted by tighter environmental regulations. Each are currently undergoing structural reorganization. Lafert is generally progressing as planned, and its performance is on track to recovery. As the market conditions for Demag have fallen far below expectations, it has begun to consider additional measures. SFW plans to accelerate additional reductions to personnel alongside reshuffling to strengthen its aftersales service.

Next is our progress on business portfolio reformation. We are proceeding with business portfolio reformation by positioning businesses outside of our key investment area into 3 types: businesses that will serve as a stable revenue base, underperforming businesses and businesses whose strategies are being rebuilt. This is a measure to strengthen our semiconductor-related business.

In the semiconductor manufacturing equipment business, we will expand our business scale by integrating and strengthening the collaboration between ion implanters and laser annealing equipment. Laser annealing equipment is primarily used for power semiconductor, but in response to growing demand, not only for power devices, but also for advanced devices, we will increase production capacity at both our Japan and France facilities.

For ion implanters, we will expand our business in Europe and the U.S. by leveraging LASSE's customer channels and broaden our sales channels to include logic, memory and power devices. This section discusses the status and future directional property of each of the semiconductor-related markets. From here on, we plan to expand our business through synergy between ion implanters and laser annealing equipment. For logic and memory, we will promote medium- to long-term development of devices based on trends found among existing customers. For memory, we aim to adopt laser annealing equipment and plan to bring new ion implanters to market launch for advanced devices.

The CIS market is expected to recover in the second half of fiscal year 2026 and beyond. We will also bolster relationships with existing customers. For power devices, we will bring new ion implanters to market launch and set our sights on customer adoption of our laser annealing equipment.

Now let's look at our segment initiatives and how their implementation is progressing. First, Mechatronics. In the field of electric control and robotics, a key investment area, we are proactively developing and expanding sales of new products, particularly to meet the demand for energy savings and higher efficiency in the transportation and logistics market.

In the semiconductor components field, we expect to open an evaluation and development center as planned for joint development with a major U.S. customer. In our core business range, we are making steady progress in improving profitability as we continue to transform our operations.

Now let's turn to Industrial Machinery. In the semiconductor field, a key investment area, we expect sales to decline due to a slow recovery in demand. However, we will work to strengthen our business by launching new equipment on the market through the coordination of ion implanters and laser annealing equipment. In the advanced medical devices field, we plan to build a framework for multiple orders centered on proton and BNCT cancer treatment devices. The plastics machinery business, a core business range, is experiencing a slow recovery of demand in Europe, but we have begun to consider additional measures.

Next is logistics and construction. In the robotics automation field, a key investment area, we developed a 13.5 ton electric-powered hydraulic excavator prototype, which was presented at an exhibition in June. In the construction machinery business, one part of our core business range, we are working to increase our market share by sequentially introducing new models of hydraulic excavators. The new construction machinery plant under construction at Yokosuka Works has been delayed due to soaring building expenses and other factors, but is expected to begin production in fiscal year 2027.

Logistics Machinery plans to complete and validate an automatic rubber tired gantry for FC displacement hybrids. In terms of utilizing digital transformation, the large crane productivity improvement support tool, SIRMS is now in operation at ports, and we are promoting high added value to our services.

Finally, let's look at Energy & Lifeline. In key investment areas, we will steadily advance efforts toward commercializing carbon neutrality businesses and promoting renewable energy initiatives. The LAES demonstration facility is scheduled to commence commercial demonstration operations in November of this year. In the core business range, structural reorganization will be implemented in the boiler business, while we strengthen our aftersales service through enhanced collaboration within the segment.

The following pages are for reference only and will not be explained.

This concludes my explanation. Thank you for your attention and dedication and loyalty to our company.