7011.T FY2024 Q4 Earnings Call Transcript
Date: 2025-05-09
Source: Financial Modeling Prep

Takashi Arakawa: The time has come for us to begin the Mitsubishi Heavy Industries Limited Fiscal Year 2024 Financial Results Briefing. My name is Takashi Arakawa, Senior General Manager of the Investor Relations and Shareholder Relations Department. I will be your moderator today. Thank you for joining. I'd like to introduce today's speakers, Eisaku Ito, President and CEO; and Hisato Kozawa, Member of the Board, Executive Vice President and CFO. Today, we will begin with a presentation on our fiscal year 2024 financial results from our CFO, Kozawa. After that, President Ito will provide comments on his assessment of the fiscal year 2024 financial results, as well as regarding our corporate strategy for fiscal year 2025. Finally, we will have time for Q&A. Today's briefing is scheduled to end at 4:30 PM Japan Standard Time. We appreciate your cooperation during today's event. Our presenters will use the fiscal year 2024 financial results slide deck, which is available for download at the Investors section of our website. Without further ado, allow me to move on to CFO, Kozawa's financial results presentation. Hisato Kozawa: Hello, everyone. I am Kozawa. I will now go through our financial year 2024 financial results and our FY 2025 earnings forecast. So it's as usual, you can see the table of contents on slide 2. First, I would like to provide an overview of our financial results in fiscal year 2024. Please refer to slide 4. This slide shows results in several key financial indicators and highlights of the results are shown on slide 5. Order intake, revenue, business profit and net income all exceeded the results of the previous fiscal year and reached record highs. Free cash flow also reached a record high of JPY342.7 billion. We also achieved all of the targets within our most recently announced forecast. And based on the increase in equity, resulting from the booking of net income for fiscal year 2024, we will increase our year-end dividend by JPY1 over the previously announced forecast of JPY12 per share, which makes full year dividend JPY23 per share. Additionally, in the previous fiscal year, the full year dividend was JPY20 when adjusted for the stock split, which makes this dividend of JPY3 or 15% increase compared to previous year. This dividend per share figure is a record high when adjusting for last year's stock split. Slides 6 through 8 show some highlights from our financial results. Slide 6 is about GTCC, Gas Turbine Combined Cycle. The bar graph in the lower left-hand corner shows gas turbine market demand data on a calendar year basis. Demand increased significantly in 2024 to 55 gigawatts. During fiscal year 2024, MHI booked orders for 25 large frame gas turbine units and the amount of order intake also reached a record high. Although not mentioned on this slide, we believe that our company is second only to beat Renova in terms of market share on an OEM basis. As shown in the graph to the right, revenue, both new installations and services revenue has continued to increase, partly due to growth in orders over the past few years, and we expect revenue to increase in fiscal year 2025 as well. Slide 7 is about nuclear power. As can seen from the color coding in the bar graph on this slide, while the composition of revenue has gradually changed, total revenue has been stable around JPY300 billion per year since fiscal year 2020. Going forward, we expect to maintain revenue of around JPY300 billion or a little higher for the time being as we make progress in the design of advanced reactors and BWR restart work. Slide 8 shows order intake and revenue in Defense & Space. Order intake in fiscal year 2024 was almost as in fiscal year 2023, which was the highest ever achieved in this business. This was due to the fact that, under the Japanese government policy of strengthening the country's defense capabilities. MHI booked orders for several large projects, including missile systems and naval ships, which are some of our specialties in the sector. Revenues also increased significantly due to an increase in order intake since fiscal year 2023, reaching a record high, for two consecutive years. So, we believe it's going to grow a little bit more, further. Then Slides 9 and beyond provide a little bit more detail about the financial results. Slide 10 includes information already provided, so I will forgo an explanation. Slides 11 and 12 show the balance sheet. Of the around ¥400 billion increase in total assets, more than ¥200 billion is from an increase in cash and cash equivalents. Although this was due to a temporary increase in cash at the end of the fiscal year, due to receipt of advances received, cash and cash equivalents were ¥657.8 billion at the end of the fiscal year, which slightly exceeded interest-bearing debt, which was ¥651.8 billion. So, this was the first time that net interest-bearing debt became negative. The equity ratio has been stable, at around 35%, and the debt-to-equity ratio has reached a record low-level. We believe that our financial stability and capacity to raise funds have increased. Slide 13 shows trends in several financial indicators. You can see that each indicator is improving steadily. Slide 14 shows our cash flows. Free cash flow improved by ¥142.6 billion year-on-year to ¥342.7 billion. Both free cash flow and operating cash flow, which was ¥530.4 billion, reached record highs. Compared with the previously announced free cash flow forecast of breakeven, this was an increase of ¥300 billion. The significant improvement was due to an increase in cash inflows from advances received arising from a large increase in order intake towards the end of the fiscal year, as well as due to a delay in the timing of outflows from investments. Slide 15 shows factors that caused year-on-year changes in business profit from ¥282.5 billion in FY 2023 to ¥383.1 billion in FY 2024. Although the impact of wage hikes and other factors pushed down profits in the period, the increase in sales and improved profit margin in each segment, as well as the effect of the weaker yen and increased gains on asset disposal, resulted in a significant increase in profits. If I may add a little more detail, the changes in one-time expenses represent the difference between ¥54 billion in FY 2023 and ¥20 billion in FY 2024. These expenses were mainly costs from business structure optimization, as well as extraordinary losses incurred in the execution of the two more Power Plant power plant projects. In FY 2023, we booked one-time expenses related to an Aero Engine program and the claims for overseas projects. In FY 2024, we booked expenses from claims and dispute resolution costs for overseas projects. Two bars to the right of that, losses from equity method FPC investments represent our share of one-time expenses recorded by power plant operating companies in the third quarter, as I explained during the Q3 financial results briefing. Slide 16 shows a summary of order intake, revenue, and business profit by segment. Over the next few slides, I will explain the situation in each segment. Slide 11 shows the situation in the Energy segment, the Energy Systems segment. As I mentioned earlier, performance in GTCC and the Nuclear Power, which are the main earnings in this segment have been strong. In Aero Engines, revenue and profit increased due to increased demand and the rebound from onetime losses incurred during the previous fiscal year. Slide 18 shows the situation in the Plants & Infrastructure Systems segment. In Metals Machinery, which is the main earner in the segment, order intake, revenue and profit increased year-on-year. In Machinery Systems, order intake, revenue and profit increased steadily. Slide 19 shows the situation in Logistics, Thermal and Drive Systems segment or LT&D. FY 2024 was a difficult year for this segment. Order intake and revenue were in line with the previous fiscal year, while profit decreased significantly. Although, revenue and profit increased due to strong performance in the HVAC business, revenue and profit decreased significantly in the Logistics Systems business due to a slowdown in the North American market and an engine certification problem. In the turbochargers business, a loss was recorded due to the bankruptcy of a supplier in Europe. Slide 20 shows the situation in Aircraft, Defense & Space segment. In the Defense & Space business, in addition to the increase in revenue I explained earlier, profit margins have been improving. In the Commercial Aviation business, despite a decrease in the number of Boeing 777 units shipped, we were able to maintain revenue scale due to growth in the North American aftermarket business and the depreciation of the yen. Over the next few slides, I will speak a little about our financial year 2025 earnings forecast. Slides 22 and 23 provides an overview of the earnings forecast. Total order intake is expected to remain at a high level of nearly JPY 6 trillion, although this represents a decrease from FY 2024. Revenue and profit are expected to increase. We are planning for a full year dividend of JPY 24 per share, a year-on-year increase of JPY 1 per share. As noted at the bottom of Slide 23, the impact of American reciprocal tariffs is currently unclear and cannot be evaluated. So we have not included this in our forecast. We are expecting cost increases for components and other items imported to the United States, but we will work to minimize direct impact on our earnings by passing through the cost to our customers. It is hard to predict market trends and the economic fluctuations, but we will make every effort to respond quickly to conditions on the ground. Back to slide 24, there is an explanation about the gaps ups and downs, but I'd like to not talk about that. For the Slide 29 and onwards, we have some supplementary data. So please look at that for your convenience. This concludes my explanation. Thank you very much for your attention. Takashi Arakawa: Thank you so much. We will now move onto President, Ito's comments. Please go ahead. Eisaku Ito: This is Ito's, President. I would like to speak about my assessment of the fiscal year 2024 financial results and our corporate strategy for fiscal year 2025. In the financial year 2024, order intake, revenue, business profit and the cash flow all overachieved the plans we established at the beginning of the fiscal year. Particularly, when it comes to order intake, we greatly overachieved our initial plans. These results come from our efforts in expanding service businesses and initiatives to improve productivity. Our evaluation is that we have been able to achieve a smooth start in the first year of our 2024 midterm business plan. On the other hand, when we look at the current business environment, reciprocal tariff policies, increasing inflation, et cetera, are leading to concerns around global economic downturns, exchange rate fluctuations, there is much uncertainty. At the same time, we also see increased understanding towards a more realistic energy transition that does not solely rely on renewable energy. So we see various business environment changes. Our company will flexibly respond to these environmental changes, prepare for uncertainty and will steadily capture new business opportunities. Under this business environment, we intend to drive various initiatives for business growth and further profitability improvements with even more power. In order to do this, we will introduce a new concept called innovative total optimization. As we strive to expand our business areas and synergies, in the short-term, we will aim to achieve our 2024 midterm business plan. And mid to long-term, we aim to unleash our growth potential and create new value so we can achieve sustainable and substantial growth. Specifically, in the growing businesses of Energy and Defense, our top priority is to enhance our business execution capabilities and steadily carry out projects. At the same time, to achieve sustainable growth, we will aggressively and rationally conduct R&D and capital investment for the future and steadily seize new business opportunities. Secondly, Energy transition and carbon-neutral related business, which is a growth domain, has been slower than expected due to changes in business landscape and the customer demands are changing significantly. In light of these factors, we will continue and accelerate development, focusing on economic rationality and energy security, which are the keys for the implementation in society to pursue our growth strategy. In addition, the business for data centers will be expanded by starting to supply machinery and electric systems. Businesses to strengthen competitiveness have experienced the large changes in the environment, particularly in mid and mass produced products. Although some businesses are struggling, steps have been taken, and we believe that it can improve in FY 2025. We will verify the effectiveness of our initial plan and develop business models that fit individual business environment and the characteristics. For example, measures will be implemented to optimize the entire customer value chain by focusing on the real needs of end users, such as labor savings and automation. In addition, we will utilize digital technology to enhance services and create new business opportunities. So this is wrapping up. Well, currently, the order backlog exceeds ¥10 trillion. And in FY 2025, we will deliver quality and services that meet customers' expectations with on-time delivery and cost as planned. We will steadily implement measures to achieve the plan. In addition to changes in the business environment, we shall also strengthen our ability to respond immediately to signs of change. Furthermore, we shall promote new policies and lay the foundation for sustainable and significant growth going forward. This new concept and measures will be explained in detail at the MTP2 4 reporting meeting scheduled for the end of May. That's the end of my explanation. Thank you very much. Operator: We will now move on to the Q&A session. [Operator Instructions] We will now take some questions. Does anyone have a question? Okay. Let us go to the first person from Nomura Securities, Maekawa-san. Kentaro Maekawa: Thank you so much. Two questions. First, your ideas on tariff impacts. So if it's gas turbines, there are some things that you're carrying over from Takasago, but you are doing things localized. But I think the total risk is controllable. I think I remember you mentioned that in the past and for Boeing, for the aircraft, I think tariffs might not be in scope of that. So you cannot see how demand will change. But in terms of the cost, maybe Turbochargers will be the major impact. Is that the correct way to understand the situation? Basically, I believe it's not going to be major cost impact. That is my understanding. But is that understanding correct? So could you please speak about the impact of tariffs? So that's my first question. Eisaku Ito: Can you hear me? So Kozawa will answer the question. Hisato Kozawa: So as Maekawa-san mentioned, your understanding is generally correct. And in reality, turbochargers is one thing, but from overseas, we are taking some things in the United States, forklifts, those are manufactured locally, but we also have a volume that we procure from overseas. So that there's going to be a cost increase impact for that. However, for the forklifts, other companies, too, other competitors have a similar supply chain for their procurement. So in terms of the competitive environment, it's not going to change that much. So from our perspective, we will try to pass through the cost. That's our policy. So we believe we can respond in that manner. And is the impact large or small, that is very subjective. So it's very difficult for me to comment on that. But we believe that it is significantly manageable, significant part is manageable. Kentaro Maekawa: Thank you so much for that. When thinking about the changes in the demand itself, the gas turbine and the defense, I think probably your portfolio is quite resilient to the macro change? Eisaku Ito: Well, you hear on the demand because of the tariff, if there's anything that you've been keen to look at. I think that could be probably the main point that I should be looking at, for example, the commercial usage. Okay. So Kozawa is going to take up the question. Hisato Kozawa: Well, as you say, the change in the demand, for example, like a crystal, the cost might go up a little bit, but that does not make any changes in the market itself. Rather than that, like industrial usage or the consumable usage, I think those are probably hit much harder. But of course, we can't say anything about the changes in the macro because of that or the impact to the macro itself, if that is visible, then it's not going to be limited to the US because if the US gets cold, then other areas might get the hiccup as well. So the impact is probably going to be spreading out to outside the US as well, which is not visible at this point of time. But if there's any impact to be had in our company, because of the business structure that we have, the mass production-related LT&D segment to some extent, might get some impact compared to other segments. Kentaro Maekawa: Okay. Thank you so much. Well, I think the second part is about the forecast for the order taking. Well, you have a plan, for example, in Page 6 for GTCC and Page 8 for the defense for the year just started for the gas turbine, I think that's going to be basically the same as how much you'll be able to work on the project. But still, the inquiries are coming in quite strongly. So much as you can expose like an order intake for the GTCC and also for the defense, can you make any comments on that? From the beginning of the year, I think you have had some upswing for the year-end for those 2 businesses. So if you could give some color on this. Eisaku Ito: Well, the forecast for the FY '25, right? So -- so first of all, for the Aircraft, Defense and Space for the defense related basically, for the year '23, '24, the baseline was strong. For '24, we thought that it's going to decline compared to the year before. But as a result, the FY '24 also had a very high level of the business to deliver. What kind of order will be coming from the authority will be the point to look at. However, what we look at is currently in the area that we are strong, I think the area -- the volume of the business that we'll be able to get might be declining, but we are not giving up. We are going to be trying a lot of things from various corners. But in total, ¥1.8 trillion size or scale, that might be quite challenging and also for the gas turbine business, or the energy system side. For the gas turbine, to be very honest, the orders of 2024 in the energy, as I mentioned earlier, most of that is coming from the gas turbines impact. So the upside that we were able to get was -- had been delivered in 2024, which we thought that, that will be kicking in, in 2025. So when we look at the balance between the year '24 and '25, then that would look like this. But still, the market demand seems to be continuing quite high. So the upswing and upside may be, of course, possible to be very honest with you. But this is the current forecast that we have. Anything to add? Takashi Arakawa: Well, for the gas turbine, by region, there are some differences like North America, as you know, data center and semiconductor plants, they need quite a lot of power. And that's about the timing for the replacement for the higher efficient gas turbine. That kind of need has been rising at least for those 5 years or 10 years on average. The demand will be coming on a constant basis is what we are assuming. And also in Asia and the other region clusters. Well, in the past, the carbon neutrality was the point for the renewable energy for some particular regions. But now there are some realistic view to take a look at. And then the clean natural gas, the gas turbine with efficiency for the advanced market and the developing markets, I think this is probably the most reasonable and realistic solution, and we get a lot of inquiries for that possibility. So, we think that is going to generate a stable business. And for the defense, the current year, marks the year that we're going to make the proposal for the next five years. So, internally, we are making the preparation of what to make the -- to include in the proposal. And then there are some projects that we are already being paid for making the proposition from the customer side. So, we just want to be one step further to come up with the sophisticated and advanced content of the proposal so that we'll be able to get those increase in the possible project for our company. Kentaro Maekawa: Okay. Thank you very much. Understood. Thank you. Operator: Thank you, Mr. We'll next move on to Ito-san from Mizuho Securities. Tsutomu Ito: Thank you so much. My first question is, when you look at the profit outlook for this fiscal year, each segment, I would like to hear about that. I was looking at Page 26. First, energy, there's this ¥346 billion -- ¥34.6 billion number for energy, it's going to go up. Could you break that down a little bit more? When we look at company total year-over-year, it's close to ¥60 billion and absolute number, like minus ¥90 billion. So, could you explain about that in terms of the corporate-wide? Eisaku Ito: Okay. Kozawa will first answer this question. Regarding energy, there's going to be revenue growth. You are thinking about the ¥34.6, gas turbines will continue to increase their profits. That is our outlook. And other than that, so in the previous fiscal year, there are some projects that we failed to capture. And in those areas, we can continue to try to eliminate our loss costs, reduce loss costs. So that's how we are trying to generate more profits. And I think you were also asking about the others corporate and eliminations line. There's quite a bit of things going in and out here. One major item here is related to assets in FY 2024, which is already over, we sold off our Homoku plant. There were major profits from assets sold that were recorded. And for FY 2025, we do not have any major similar plans. So, that difference is the largest item contributing to this minus here. Tsutomu Ito: So, in terms of the overall minus ¥90 billion, what -- I think there's ERP, various different items. What's inside that? For FY 2025, ERP development costs, that's one thing and company-wide common R&D costs and another thing that fits in here is -- in each of the segments, we still haven't done it, but there are some things that we've said about as growth areas for the future. There are development costs for that. And those are the type of costs that are major items there. Tsutomu Ito: Understood and thank you. My second question about the gas turbine. Can I ask the CEO to explain? You've shown the details by region, the trend is different, like the US, Asia, all regions show the different colors. Now when it comes to your competitive edge, whether that is strong, weak or disadvantage and advantage or specifically, for example, the replacement, I think that's a very important trend to follow. But probably the existing service provider probably have more negotiation power or in area like Middle East included, like Saudi Arabia and the Middle East have been rising some of the businesses already or there are no businesses in the past, but then you're starting to get those businesses. The areas that you are not that much familiar in the past, relatively speaking, I should say. But do you think there will be a rising opportunities going forward? Can you supplement that as well, please? Eisaku Ito: Sure. Well, about the competitiveness that we have in the gas turbine business. Our gas turbine customers are the advanced gas turbine, the highly advanced domain is it seeking it -- using that as a base load for the superefficient gas turbine. The load is about 100% fully loaded. That ratio is very high for our business. That's the uniqueness for us because that directly leads to the better profitability for our customers they use the superefficient gas turbine. So in that case, the competitive edge in the turbine business is retained in our company, I guess. We internally, of course, we are preparing for the next step to come for us to retain that competitive edge. And talking about the geography, for example, Middle East -- Middle East is many decades ago, in Saudi Arabia, we have sold a lot. But recently, there are some plants that we have supplied, and we do have a lot of inquiries coming. And from new regions, we are starting to hear some inquiries, too. So this is the domain that we expect to grow from now. Did I answer your question? Tsutomu Ito: Yes. Thank you so much. Eisaku Ito: Thank you. Operator: Tatsuhiko Ito from Mizuho Securities. We will next move on to Mr. Taninaka from SMBC Nikko Securities. Tatsuhiko Ito: Thank you. So I have two questions. The first is related to -- as you go into the new fiscal year, your free cash flow forecast is minus JPY 200 billion. Could you give us some background on why you're forecasting that? Eisaku Ito: Kozawa will respond to that. Hisato Kozawa: To be very blunt, FY '24 jumped up very much, and it's kind of a pushback from that. We don't want to make it minus JPY 200, but with the advances that came in, in fiscal year '24, it's going to kind of swing back from that, but maybe there's going to be advanced in FY '25, too. It could improve, but we don't want to have an aggressive forecast. I will be scolded. So I think this might be the good line of the forecast. Tatsuhiko Ito: Thank you so much. And my second question, I want to look at onetime costs and losses. In the past fiscal year, you might have had quite a bit of buffer for additional costs. But in each of the businesses, onetime costs, losses, how much did those occur? And in the new fiscal year, how much buffer have you built in for those onetime costs? Could you give some clarity there? Eisaku Ito: Kozawa will expand to that question. Hisato Kozawa: First, for the past fiscal year for the change in onetime expenses, segment-wise, this corresponds to energy. This is about thermal powered plants. We were responding to overseas costs, and there was a minus JPY 10 billion or so that occurred in the past. And in the fourth quarter, this is another project, but there were some another additional claim costs that are the base. So that minus JPY 20 billion is what we are including for the past fiscal year and something that we have not accounted for here in terms of cost in the past fiscal year. And I did mention it when I explained the financials, turbocharger, there was some supply chain confusion in the turbocharger business. And in terms of the forklift business, there were certification issues. Those did exist. But for those issues, those are not included in onetime expenses, but they're included in the change in revenue improved margin. So that's how we're allocating for each of these. And for the outlook, we do not show change in onetime expenses. There's not anything that we do have in mind, but we have about JPY 20 billion buffer. In terms of segment, that corresponds to energy right now. Energy unfortunately in FY '24, there was JPY 20 billion. And so for FY '25, we're also looking at JPY 20 billion at this point in time in terms of the way we built the numbers. So in terms of the Slide 25, change in revenue improved margin, it's fairly big. The plus JPY 134 billion includes like forklift turbocharger related rebound improvement. So those are some uplifts that are included there. That's all for myself. Hisato Kozawa: So just to supplement, in terms of other corporate and eliminations, I believe about ¥40 billion is about the real estate sales and the impact. I think there's an additional ¥20 billion minor. Is that not buffer? Is that various development costs built in there? Tatsuhiko Ito: Sorry, in slide 27, 28, what are you looking at? Eisaku Ito: Waterfall chart. There was a waterfall chart, I believe. If you look at 2024 asset management minus 65 is the number that we are showing here. So in terms of the fiscal year that's ended, about 50 is including the segment, but out of 65, 60 or so is what we are seeing in the other area, the asset-related gap is reflected there. Tatsuhiko Ito: And then I think you mentioned 40, and I think that might be slide 13 or something. And I think you were speaking about the reverse there. This is the year-on-year difference. So this is about the impact that we are looking at in terms of the difference between 2024 and 2023, that's all for myself. I understand. That's all for myself. Operator: Taninaka san, thank you so much. Now the next question comes from Fukuhara san of Jefferies. Sho Fukuhara: Thank you very much for your explanation for today too. I have two questions. The first question is about the gas turbine business. In the beginning, you talked about that last year's share, they have ranked number 2, probably overseas manufacturers. I have been taking a lot of businesses. But talking about the current fiscal year GPCC order intake plan, you do see the gap against what you have taken last year as a result. So my concern is, last fiscal year, you ranked number 2. This year, do you think you're going to stick back that situation of being number 1? So in the gas turbine business, your market share, do you have any view for the change of this? Takashi Arakawa: Hisato Kozawa, is going to talk about it. So.. Hisato Kozawa: Thank you for the question. Talking about the number one and number two, it's hard to see because as you say, the competitors are located overseas. So we've been ranked number one and number two. When we talk about that, we normally base that figure on the calendar year. In the meantime, this order for our financial year, we closed our book in March end. So there is a difference of the calendar year in the fiscal year. So it's hard to make an apple-to-apple. Sho Fukuhara: But what kind of market share we think we'll be able to grab. Hisato Kozawa: I think that, of course, depends on the size of the project and what kind of a timing that is going to come in as an order intake throughout the year. It's hard to assess and the forecast. But -- in terms of the value base, for example, as I mentioned earlier, what kind of projects are coming in like a peripheral works they have as the construction and what kind of other additional auxiliary work is going to be coming as an addition is going to make a big differences. So the value amount per project might change quite easily. But looking at the market environment and landscape, we are not seeing sign that we're going to change the presence in the market. So we'd like to foresee the business to some extent. Takashi Arakawa: And Ito is going to comment. Eisaku Ito: Well, our company, MHI, again, for the current year, but for the next fiscal year, we've been utilizing the capacity almost fully. The competitors, the capacity, the production capacity is big. So the ones that they have not been utilized, maybe that could use that for the mid to smaller size of the turbines. So when we look in total, our capacity is the bottleneck. And that probably is reflecting the market share in the ranking. But as was mentioned, our gas turbine customers are the utility corporates, they want to see high efficient companies at the high utilization, the high run rate. That's the normal pattern of the operation. So the large-sized, most advanced gas turbines that they are buying. Those are a lot of inquiries that we are getting. And we do get those inquiries for quite a long time for going forward. And the other companies want like middle cut or the peak cut type of things. However, the unit scale is quite big so that the total capacity may look big. That's the public data. Our total share is number 2, but for the advanced gas turbine, I do remember we are still positioned number one. Hisato Kozawa: Sorry, I'd like to just build on that. So we're looking at the comparison of the FY '24 and '25, it seems that it's going to decline. But in FY '24, about 3 months ago, we came up with the outlook, and we did not think that it's going to go up that much. So compared to that forecast, actually, the 2024 had a lot of the uptake. Most of that portion is coming from the gas turbine good performance. So I think that's probably the variance between the '24 and '25. So if some kind of variance happens then from the '26 over '25, then the same situation might happen, but probably the best I can say. Sho Fukuhara: Thank you. I had a second question. So inside the CEO's comments for businesses where you are trying to become more competitive, you have made moves in the previous fiscal year. So you should start to see results from this fiscal year. I believe you commented that. But when you look at this year's plan, especially plants or logistics, thermal drawing system, when you look at the profitability there, so when you look at the terminal profit, it doesn't seem to be reflecting kind of the profitability improvements after you made those improvement initiatives. So what sort of improvement initiatives did you do? And this fiscal year, where are those profitability improvements going to emerge? That's my second question. Eisaku Ito: So first, for the mass production items, there was some supply chain confusion, and we have been able to prepare another supply chain so we can manufacture those items. And in some regions, we have more inventory, and we are also doing production adjustments for those regions. So each of those items are small initiatives, but those are some of the initiatives that we have been doing. In FY 2025, in addition to those initiatives, one thing, this is something that we do always, but we have been trying to do more in terms of how we procure -- try to use the volume impact to reduce costs. And we want to improve all of the production challenges that we see in the front lines and overcome those technically one by one, and we are gradually seeing the results from those. And those should definitely be reflected in our numbers. We also are trying to utilize digital IT tools. In the past, when we receive an inquiry, we would handle one of them, but we want to automate that more you also want to do standardization, create some patterns. In the past, it could take a lot of time to respond, but we want to respond immediately. And those tools are now becoming available for us. So I believe there are some initiatives that will make it for this fiscal year, not make it, but those are also going to produce some impacts. That's all for myself. Sho Fukuhara: Just to check, in terms of your portfolio management, I think that also means that kind of putting in or putting out units. Are you thinking about that sort of a thing in terms of your portfolio management? Eisaku Ito: We say portfolio management. First is about three different areas. We have split our business into three years. And depending on the characteristics of our core business growth areas, competitive areas, we are trying to manage each of those businesses in the most appropriate ways. And when we look at each of the businesses, if it's a business that we want to make more competitive, we then first focus on the current products, technologies. We add on digital technology to create more added value or we add technologies used in other products to achieve completely new functionality. Those are some things that we are trying to do to evolve our products and services -- and the customers in scope and target gradually changed because of that. So that is what is included when we say portfolio management. But broadly speaking, what we have been saying from last fiscal year, if the best owner of the business is outside our company, that is, of course, an option we will consider. So everything is included in our portfolio management. Hisato Kozawa: This is Kozawa, but I would like to supplement. So in your initial question, you said that our profits are not growing -- profitability is not growing, and I'd like to supplement about that a little bit. So in the past fiscal year, the average exchange rate was about JPY450, and now it's about JPY145. So yen has appreciated compared to the past fiscal year. It's not just LT&D, but especially LT&D receives impact from the FX rates, and that's where the marginal profits become a little bit more negative from before. So that's another thing that I believe you should consider. And in terms of what's inside or outside the portfolio, there's not much we can disclose. But regarding that, those changes are not shown inside the outlook that we are showing today. So there is some possibility of something happening. I cannot comment on that. Sho Fukuhara: Thank you so much for that. That’s all for myself. Operator: Fukuhara-san, thank you so much. So the next question comes from UBS, Sasaki-san. Tsubasa Sasaki: Can you hear me? This is Sasaki of UBS. Takashi Arakawa: Yes, I do hear you. Tsubasa Sasaki: Okay. Thank you. Thank you for your presentation. And I have two simple questions. One, is that I'm just being attentive to the free cash flow. For the current fiscal year, you have about JPY200 billion negative. But even including that, your free cash flow is going to be topping JPY300 billion. That's wonderful. And for this year and the last -- next fiscal year, that's going to be around JPY40 billion, meaning that what I want to say is your cash flow generation capability is getting stronger. Am I right to say that, because conventionally with the expansion of the revenue, the working capital also increases. That was the trend in the past. But including the advances as well, the cash conversion cycle being improved, cash flow generation capability is probably being improved. Am I correct? Eisaku Ito: Well, thank you very much for the question. Well, for the two years, for JPY140 billion, should we say that is a good figure or not? I don't know whether that has been the case. But for the year that just ended was very good, not only for the fiscal 2024 and 2025, but also including the year before that 2023. We have been generating free cash flow on a steady basis. So for the FY 2024, there was some demand that came at the really last point of the year, so that we got the advanced payment. So I think the baseline has been going up for the free cash flow generation. Well, rather than the free cash flow, I'd rather say it's an operating cash flow that we are paying attention to. Of course, free cash -- when we talk about the free cash flow, well, that could change and fluctuate depending upon the timing of the investment, but the operating cash flow has been steadily rising. And for the year that just ended, well, there were some one-off expense one-off things, but we were able to generate quite a lot of the amount as you see. That was quite a new thing, I think. Tsubasa Sasaki: Okay. Thank you so much. I think the operating cash flow that you're starting to generate, is that because of the advance? Is it the only reason? Or are there any changes in the landscape? Hisato Kozawa: Well, I wonder something outside the one-off. I think we are able to generate profit very steadily. Whether we should say OPM or the net income, anyway, we are starting to get the profits on a steady basis. I think that is the largest factor. And also the working capital or for the inventory asset, we just want to have a better efficiency to reduce the lead time so that we'll be able to have better turnover and not have the inventory asset so much. However, the business is expanding so that the inventory asset itself is, of course, going to be expanding, but we'd like to have a good control over that as much as possible. Tsubasa Sasaki: Okay. Thank you so much. My second question is about the energy business. How do you think about the margin? Because last fiscal year, it was 11%, that was a big improvement. And then this year for the revenue, there is a slight increase. However, the margin is planned to go up to 13%. So the energy business, OPM margin improvement, how is it going to be delivered? And what's the logic behind it? Hisato Kozawa: Okay. Thank you so much. So 13%, I just realized that because you mentioned that. Well, in the various businesses that we are conducting now, there are a lot of initiatives that are going on. And for the gas turbine business, the service volume is hiking. And compared to the past, at the night time of the new project timing, the profitability is improving before taking up those new contracts, which leads to the profitability improvement. So that's a positive contribution to the margin. Whether that is going to be going up on a steady basis, of course, we can't say that. However, the percentage of going beyond the 10%, we think we'll be able to steadily keep that level. And we just wanted to make sure that we do not lose the opportunities, not getting a lot of legal complaints. If that's the case, then we think this double-digit over 10% will be deliverable on a steady basis going forward. That's my view. Tsubasa Sasaki: Okay. Thank you very much. Hisato Kozawa: Thank you. Operator: Thank you, Mr. Sasaki. It’s getting close to the end of our time. We will only be able to take one more question. Thank you for your understanding. We'll next like to move on to Tai-san from Daiwa Securities. Hirosuke Tai: This is Tai-san. Thank you. I'm sorry. In terms of asset, sales actual value last year, it was about ¥60 billion. And this year, your assumption is zero. Is that the correct understanding? Sorry for details. Hisato Kozawa: So for the past fiscal year, it's about JPY 70 billion. And this fiscal year -- so that's JPY 70 billion is fiscal year '24 and fiscal year '25 is about JPY 50 billion -- JPY 5 billion, sorry. Hirosuke Tai: And another thing, Kozawa-san, balance sheet transformation, it's related to cash flow, but I think you've been able to significantly advance that in the past couple of years. If you have stable cash flow and your dividend payout ratio is about 30%, could you increase that? And Kozawa-san, you've mentioned this in various places. Maybe you can utilize debt. That's an idea that you've been sharing. So as you pass on to Nishi-san, are there any thoughts or messages you'd like to share right now? Hisato Kozawa: Yes. So in terms of dividend payout ratio in the past, it was 30%. But from DOE 4% or higher. So we changed the payout ratio, but it's about 30%. It doesn't change that much if you calculate it, but that's the dividend payout concept that we have right now. And in the future, if there are -- if we need to find good investment opportunities, doing investments in the proper way, I think that's going to be a key point for us. And as we do that, I think we also have the capability to utilize debt. So that's something that we'd like to utilize. And if we still have surplus, share buybacks could be something that we can also consider in the future. But as Eisa did mention, it's going to be about and Ito that will think about that. So that's who they will think about. Hirosuke Tai: And lastly, one more thing, question to Ito-san. So your company IHI heavy Industries in the past couple of years, your business results and your stock prices have greatly changed. And I think a lot of it is because there's been a great tailwind in terms of demand environment, defense budget. I'm not saying that the company has not changed, but I think you have been assisted -- all those three companies have been assisted by the tailwinds. And the next couple of years for those three companies, I think you're now going to start to see differences between those three companies. Ito-san, do you have any thoughts related to that? It doesn't need to be complicated. Could you simply state any thoughts that you have? Could you have any messages that you can deliver to us? If we need to wait for the next briefing, we'll wait. But if there's anything that you can comment on today, we would appreciate that. Eisaku Ito: Thank you so much for your question. So in the next briefing, I will explain this in more detail, but one thing, we want to optimize for all in a more proper way. One of the characteristics we have is that we have various different business areas, and we will try to round up what's common to us. So the Mitsubishi Heavy Industry Group can do something once and utilize that across various different products. And if we can collaborate horizontally and more properly, we can reduce quite a bit of waste. And that can improve kind of the base profitability level. So that's one thing that we have in mind. Another thing, we want to explore synergies. Our current business, we look at our current businesses and technologies as core, and adding something on to that. We have so many different pieces that we already have inside the company, and we add on those pieces, we can create new value or create something that can be used in a new area. So that's another thing that we are thinking about. What I've been thinking about internally is that we want kind of even more customers to use us, so we can contribute more to society. So at the current point, there are some businesses where we have lower share. And that actually means that there's potential for those businesses to really transform and change. So that's another area that we want to focus on. And for our growth areas -- Energy Transformation, Carbon Neutral -- those are a little bit behind. But as our company has been stating, 3E+S, especially the economics and energy security -- we want to brush up both sides in terms of our Research and Development. We want to continue to do that. So -- producing hydrogen, carbon capture -- we want to create solutions that have the best economics in the world. And for our growth core businesses -- Gas Turbines -- we will continue to improve the performance of the Gas Turbines. And we also want to move into new regions for Defense. We will be proposing the Five-Year Plan in this fiscal year. Internally, we have been preparing for this, and we will be proposing that to our customer. So our core business also has potential to achieve significant growth. That is all for myself. Thank you so much, and Kozawa-san, thank you so much for supporting us for so long. Operator: Thank you very much, Mr. Tai. So it's time, and this concludes today's briefing. Thank you very much for taking time from your really busy schedule to join us.