Nippon Sanso Holdings Corporation (4091) Q3 FY2026 Earnings Call Transcript & Summary

[Interpreted] It's now time to begin the Nippon Sanso Holdings Corporation Earnings Call for Fiscal Year ending 2026 Third Quarter. Thank you very much for taking time out of your busy schedule to attend today. My name is Ishimoto from the IR Department of the Group Finance & Accounting Office. I will be the moderator for this conference. Thank you very much for your cooperation. I'd like to give you some information about today's conference. First of all, the conference materials or the financial results furnishing and earnings conference -- earnings call reference that we have just released, I'd like all participants to have them at hand. Next, we have 3 main presenters today: Hamada, President and CEO; Draper, Senior Executive Officer, Group Finance, Accounting Office and CFO. In addition, Group Executive Officer, Group Corporate Planning Office; Miki, Senior Executive Officer, CSO Group Sustainability Management Office; Yoshida, General Manager of Accounting; and Kajiyama, General Manager of IR, are also in attendance. As for the program today, first, Hamada, President and CEO; and then Draper, CFO, will present the third quarter financial results, along with the presentation materials. Then there will be time for Q&A. Please note that today's session will be bilingual in Japanese and English. [Operator Instructions] Hamada-san will now be starting the presentation.

[Interpreted] Good afternoon, ladies and gentlemen. I am Hamada from Nippon Sanso Holdings. Thank you very much for taking the time to join our third quarter earnings conference call today despite your busy schedules. Without further ado, let me briefly walk you through the key points summarized on this slide regarding our business performance. Following my overview, our CFO, Mr. Alan Draper, will provide you with a detailed explanation of our financial results. First, let me provide you an overview of our business operations. The overall sales trends, unfortunately, have not shown robust demand growth and have remained either flat or on the weaker side. On the other hand, in the electronics sector, generative AI data centers or growing semiconductor demand for data centers, sales are on a recovery trend across regions, which we view as a positive development. However, if we look at the macro environment, there are U.S. military actions in Venezuela and concerns over U.S.-Europe tensions regarding Greenland. And after New Year, I don't know whether Japan was the cause, but there are uncertainties regarding Japan-China relationships. So these are all concerns. And China announces the tightening of the restrictions -- export restrictions to Japan. And dichlorosilane, which is a specialty gas, has been announced that there is an initiation of an antidumping investigation. We are currently assessing the potential impact on some of our business. And according to my experience, it should not account for a large volume. However, we would continue to closely monitor the trends as well as the actual numbers. And during this situation, I think each of the regions are doing very well, thoroughly implementing price management and operational excellence or improving efficiencies, including cost reduction. And as a result, profitability has recovered more than we had originally expected. Now if I may give you the performance highlights. Well, later on, Mr. Alan Draper will provide you with a detailed explanation of the situation in each region and business segment. But I here would like to briefly share the performance highlights for the third quarter, specifically regarding U.S. and Asia and Oceania. First, the U.S. business. As I mentioned earlier, volume-wise in gas, we cannot say that we have reached a full-scale recovery. However, we have continued execution of price management and thorough cost controls. These have been successful. And in the third quarter nonconsolidated basis, core operating income margin has improved up to 15.1%. From the fourth quarter onward, we will -- we have the full-scale launch of new on-site projects. It has been launched and ongoing price management is conducted. Thorough cost controls as well as productivity improvement initiatives will be worked on. Therefore, we expect continuous improvement in profitability. As a matter of fact, with regards to the United States, we thought that -- we have been thinking that the industry itself will be more booming. However, the fact that the gas industry volume has not fully recovered, the manufacturing industry using gas has also not been recovering full-fledgedly. So from our perspective, it is slower than our forecast. We were thinking that from the middle to the third quarter, the industry will be recovering and becoming more active in the U.S. However, there may be some geographical matters or political issues leading to this situation. But still, we believe that our company is doing very well. And when it comes to Asia and Oceania business, as I have briefly touched upon, electronics rather than Oceania, Asia, the sales to the electronics sector is on the recovery track. In the third quarter nonconsolidated basis, core operating income margin improved to 10.7% and EBITDA margin reached 17.9%. According to the current medium-term management plan, segment EBITDA margin target is 17%. So we were able to exceed that. This means that it marks the first time that all segments have achieved this target on a quarterly basis. As I mentioned at the outset, electronics is for AI data centers impact is, well, giving us a positive result. And I may have said this before, we were expecting an early recovery. However, finally, I think we are seeing that recovery is on track. Now next, I would like to talk about the status of investment of our company. I earlier talked about the -- that we will be monitoring the world global situation, and we'll be carefully listening to the customers' voices, and we have proceeded with capital investments carefully, taking those into account. Now we have actually stopped most of our capital expenditure because we have not known what will become of the tariff impact. However, the CapEx through the third quarter totaled to JPY 78.4 billion. Compared to the previous year, it is still at a lower level. However, the industrial gas business -- in order to expand industrial gas business, we need to make investments. Therefore, in the latter half of the year, we have seen more momentum recover. So we would like to catch more of those CapEx projects. However, still, there are investment risks. Seeing the uncertainty in the global situation. we would like to grasp, for sure, the growth opportunities, so that we will be able to grow our business, capturing investment opportunities. And I would like to talk about the backlog situation of CapEx later. Now topics. First of all, we announced the construction of a, well, in our Tsukuba laboratory at Taiyo Nippon that we will be making a R&D center for advanced materials for the electronics industry called -- well, tentatively called Advanced Electronics Materials Development Building and we expect it to be completed in March 2027. Now at this new facility, we aim to develop new products that address the not only gas, but liquid materials, new products that address the evolution of the electronics industry. And we would like to also promote development through collaboration, both within our group and with external partners. And as we have been mentioning from the past, the current midterm management plan will end this March. And a new midterm management plan right now is being reviewed proactively. NS Vision 2026, which is the current medium-term management plan will end, as I mentioned earlier, this March. So as for the new MTP starting from April this year, well, on March 30, next month, we would like to conduct a briefing to explain about the new MTP as our team has announced, and we will have a venue near the Tokyo Station for the briefing. This will be held both face-to-face as well as online, a hybrid format. So we welcome your participation. And additionally, our fourth quarter earnings announcement and conference call are scheduled for May 11. And the earnings briefing where we will explain our business plans for the next fiscal year and beyond, based on this fiscal year's full year results, is scheduled for May 22. Now next, I would like to explain our future capital investment execution plan. As in previous presentations, this chart shows the composition of our capital investment plan by customer industry. Our backlog as of December 31, 2025, stood at approximately JPY 150 billion, no difference from the second quarter. However, there are some replacements. We have added new projects, 6 of them, and completed -- there were 4 completed projects. There are also foreign exchange impacts as well. However, as we mentioned in the first half, we have not been making CapEx -- normal CapEx at all. Therefore, in the second half, we would like to make investments for these projects. Our industrial gases itself contribute to a sustainable society. And we are communicating this proactively recently, and we don't know whether this is a good categorization. However, if I may, new CapEx contributing to a sustainable society according to our calculation is approximately 38% of our total backlog. As shown on the lower part of this slide, for projects below JPY 500 million are not included here. So now I would like to hand over to the CEO (sic) [ CFO], Alan, to walk you through the financial results. Alan, please. [Foreign Language].

Please turn to Slide 8 as I start my presentation on performance. Let's go to Slide 9 now, please. For the quarter, October 1, 2025, through December 31, 2025, revenue grew 5.7% or approximately 2%, excluding currency impact compared to the same time last year. Core operating income increased by 12.3% or 7.6% on a constant currency basis. COI margin improved to 15%, up 90 basis points and EBITDA margin rose 150 basis points to 24.5%. As mentioned by Hamada-san earlier, this quarter marks the first time that all NSHD business segments exceeded EBITDA margin of 17% and as a group achieved more than 24%, meeting our medium-term plan goal. Year-over-year growth and margin improvements were primarily driven by price management, operational excellence, productivity and best practice initiatives applied across businesses and geographies and also contributions from acquisitions. On the right-hand side of the page, we summarize the revenue bridge for Q3. Foreign exchange contributed 3.7%, primarily due to yen weakness against major currencies. Price added 1.8%, while pass-through and surcharges decreased about 1%, reflecting lower on-site energy costs. Volumes declined minus 1.8% and then the other category reflects positive contributions from acquisitions in Europe and Oceania as well as strong equipment sales in Japan electronics. There were no significant nonrecurring items this quarter, resulting in operating income increasing 12.2% year-over-year. Turning to guidance, as shown on Page 23. Today, we're revising our full year revenue and profit outlook. Although gas demand remains soft due to ongoing macroeconomic and geopolitical uncertainty, favorable currency tailwind and continued contributions from M&A and sustained price and productivity actions supported an improved outlook. We now expect to exceed our original revenue forecast by 3.1%, resulting in JPY 1.33 trillion, and we expect COI of JPY 196 billion, a 2.6% increase compared to our original forecast of JPY 191 billion. The currency rates assumed for the revised forecast are JPY 150 per USD 1 and JPY 170 per EUR 1. In addition, we also expect to achieve our midterm plan EBITDA margin goal of 24%. This one we determined was one of the hardest ones to achieve, and it looks like we're going to achieve favorably. Please turn to Page 31. Operating cash flow rose 16.5% year-over-year. Investing cash outflows rose 22%, primarily due to the Oceania acquisition. Free cash payments -- sorry, free cash was slightly negative for the 9-month period due to acquisition-related payments. Now I'll review results by segment. In Japan, price management efforts continued in specialty gases and CO2. However, soft volumes more than offset the revenue growth. Industrial gas-related equipment and installation projects performed well, while electronics-related projects decreased versus prior year. Electricity costs remained stable with a slightly downward trend. The revenue for Q3 in Japan was JPY 100.6 billion, down JPY 0.2 billion or minus 0.2% year-over-year. Core operating income of the segment was JPY 12.6 billion, up JPY 0.4 billion or 3.4%. COI margin improved by 40 bps, which is basis points, to 12.6% and EBITDA margin improved by 70 basis points to 17.4%. Page 11. Revenue growth in the U.S. was supported by favorable foreign exchange, strong price initiatives and solid equipment installation sales. Inflation headwinds remain, but due to price actions and productivity measures, COI increased year-over-year. Q3 revenue was JPY 92.6 billion, up JPY 2.1 billion or 2.3% year-over-year. Excluding currency impact, it was up 1.3%. Core operating income was JPY 13.9 billion, up JPY 0.4 billion or plus 2.6% year-over-year, and excluding currency impact, COI was up 2.1%. COI margin and EBITDA margins were 15.1% and 28%, respectively, representing an increase of 10 basis points on COI and 80 basis points on EBITDA. We continue to drive price actions, productivity initiatives and cost reduction and also savings efforts to improve profits of this business. Slide 12. In Europe, on-site volume softness persisted. However, positive price performance, stable to moderating energy costs and contributions from the Italian acquisition supported solid year-over-year growth and margin expansion. The revenue for Q3 in Europe was JPY 90.2 billion, up JPY 6.9 billion or 8.3% year-over-year. However, excluding currency, revenues were slightly negative at minus 2.3%. Core operating income was up JPY 18.5 billion or up JPY 3.1 billion or 20.4% increase year-on-year, while the COI improvement was a modest -- a more modest 8.6% increase, excluding currency. The core operating income margin improved by 210 basis points to 20.6% and EBITDA margin rose 280 basis points to 33.5%. Next page, please. Strong revenue and profit growth were driven in the Asia and Oceania segment, primarily by the Oceania acquisition and continued strength in specialty gases and electronics-related installation projects. Q3 revenue was JPY 55.5 billion, up JPY 10.3 billion or 22.7% year-over-year or an 18.1% improvement with constant currency. Core operating income was JPY 5.9 billion, plus JPY 1.9 billion or 47.2% year-over-year. Excluding currency, COI grew at 40.5% COI margin increased 180 basis points to 10.7% and EBITDA margin was up 240 basis points to 17.9%. Next page, please. Thermos. Thermos experienced weaker results due to sales decline in its core markets of Japan and Korea. In addition, increase in procurement costs more than offset pricing actions and cost optimization efforts. Revenue for Q3 was JPY 7.6 billion, down JPY 0.4 billion or minus 5.1% year-over-year. The decrease was 5.2% ex currency. For core OI, it was JPY 1.3 billion, down JPY 0.3 billion or 17.6% versus prior year. Ex currency, COI was down 19.2%. The segment COI margin declined by 270 basis points to 17.6% and EBITDA margin declined by 240 basis points to 23.2%. For your reference, please refer to Pages 15 through 21 for the first 9-month detail. I will not cover that information today. As previously explained, we have revised our full year forecast to show updated financial expectations for this fiscal year. And this concludes my comments and full year outlook. Thank you very much for your attention.

[Interpreted] Mr. Hamada and Mr. Draper, thank you for your explanation. We would now like to take questions. [Operator Instructions] So we would now like to take your questions until the scheduled ending time. CLSA Securities, Mr. Cho, please.

[Interpreted] I'm Cho, CLSA Securities. I have a question regarding the European situation. The European margin is improving a lot in the third quarter. And was it the acquisition impact? How much was the acquisition impact? And towards the fourth quarter, the European margin, how do you -- what is your outlook on the margin in Europe for the fourth quarter? Those are the 2 questions.

[Interpreted] For this, I'd like to have Mr. Draper answer the questions based on specific numbers.

Thank you for your question. This is Alan Draper. So overall, we don't disclose the performance, unfortunately, on a region or acquisition basis. You can see that in our walk, you get a fairly good sense of we have a sizable portion that's due to Coregas as well as Kleenheat and Polaris. But overall, it's not a huge acquisition for Europe. The biggest driver was strong performance was due to lower power pass-through. And then at the same time, they had significant amount of pricing and productivity efforts that went through the organization. So there was some benefit related to the acquisition, but it's not a huge impact when you look at Europe's EBITDA margins.

[Interpreted] So the fourth quarter, do you think that the margin will be similar in the fourth quarter as the third quarter?

Yes, this is Alan again. So overall, margins, it was a good quarter in the third quarter. I think things will be probably pretty similar to what they were in the third quarter to the fourth quarter. There's always a little bit of movement. Power always is an unknown. If power costs go up, we do more pass-through, which is a little bit of a deterioration on your margins. If power costs go down, there might be a little bit of a benefit. But probably around that range is probably pretty good estimate. We've been in that 31%, 32%, now 33% range the last year. So I expect it to continue in that same range.

[Interpreted] And as for the second point, -- as for the Asian trend, segment margin Q-on-Q and Y-on-Y has been improving. And the background of the improvement is, of course, Coregas acquisition impact, I think that is one thing. But excluding that, the largest is the semiconductor gas sales improvement. Is my understanding correct? Asia's third quarter margin is improving. So I would like to know the background of that and also the fourth quarter outlook as well.

[Interpreted] So again, I would like to have Mr. Alan Draper answer this as well.

Overall, we've been really working hard at the Asia-Oceania segment. I think we hit kind of a low late last year, beginning of this year. We had a lot of pre-acquisition and acquisition costs that came through that kind of brought results down. We had some helium headwinds that while they still are a headwind, they're a little bit more, I'll say, modern normalizing a bit. So the underlying business is driven by East Asia Electronics. That business is performing well. We're seeing good improvement, good electronics demand on both gases as well as on the equipment side. And I expect to continue to see progress as we get into the fourth quarter into the next year. So I do expect to continue to see this level and even a little bit higher as we move into next year.

[Interpreted] SMBC Nikko Securities, Shintani-san, please.

[Interpreted] SMBC, I am Shintani. And now I'd like to talk about the factor for the revision of the corporate performance. I'd like to check the detail as a positive factor effects, yes, depreciation or price management, productivity gain and a new consolidation factor. On the other hand, the volume are the reason of the negative factor. As much as possible, how much was the impact, the order or the breakdown? Could you elaborate on that?

[Interpreted] Thank you very much. As for the ForEx impact -- presentation. So we'd like to ask Alan-san to respond to that question.

Yes. So thank you. This is Alan Draper. So obviously, we're continuing to see the foreign currency benefit. So that's by far our largest benefit that we have. Underlying volumes are a bit soft. So if you look at it, it's really driven by the foreign currency being offset by a little volume weakness. So we're thinking that in the fourth quarter, volumes are going to continue to stay at this relatively soft pace, maybe minus 1% in that range as a combined NSHD group and the currency is really offsetting that. And obviously, we're still driving price and productivity efforts. So -- but the major driver is definitely the pricing aspect -- sorry, the currency aspect.

[Interpreted] So ForEx has been the major driver. The next contributor is price and productivity. They are on the equal footing, the same level?

Yes, this is Alan. If you take a look at the bridge walks that we have and you look at the third quarter, it kind of gives you a sense for what we're seeing when you look at revenue growth and obviously, the profit side of things. So I don't think we're going to have any major dramatic change from what the third quarter looks like to the fourth quarter. Fourth quarter sometimes is a little bit stronger with equipment sales, but I don't anticipate any major shift from that 3Q vision when we look at fourth quarter. So that gives you a little insight as to the major drivers.

[Interpreted] BofA, Mr. Enomoto.

[Interpreted] This is Enomoto BofA Securities. I have 3 questions. Number one, electronics improvement. I think the CEO referred to the improvement. Exactly what is happening? Can you elaborate? For example, the demand or order in Japan is increasing for equipment or specialty gas recovery is gaining momentum? Or what kind of field do you have, a live field? That's my first question.

[Interpreted] As for electronics, it's not that this one particular gas has improved greatly. The semiconductor production itself is growing a lot. Therefore, our semiconductor manufacturing factory, we do have factories in various countries and regions. And so there are -- we are seeing great volume in all regions. And also this is not reflected in the numbers. It's very detailed. But as I have mentioned before, the capital -- the installment of construction in Japan, we had 2 large projects. And other than we also have other projects as well. Therefore, the electronics-related business has increased a lot. And therefore, similar thing is happening in the United States as well. There is one manufacturer ordering us a part of their equipment installment. And we -- that kind of a project is increasing. Therefore, gas uses material and equipment to use gas, both are increasing. That is the situation of electronics. That's all for myself.

[Interpreted] Understood. So recently, it's not that you are seeing a sudden increase lately. It's not that you are seeing an increase in backlog all of a sudden.

[Interpreted] Well, as a matter of fact, in Japan, there are new construction projects, but that is not reflected in the numbers yet. So the improvement in numbers that you see is not due to some sudden project. It's that our overall volume is increasing. That's all.

[Interpreted] My second question is Europe -- about European market. From this year, the border tax carbon or CBAM regulation has been introduced. Do you see any kind of impact from the CBAM, for example, steel industry or chemical industry, the industry that will impact the CBAM. I think you do have -- make a lot of shipments of industrial gas to those industries. So if you see some sort of situation.

[Interpreted] Well, thank you for your question. I do not have a good understanding in it. So maybe Alan Draper, can you -- Alan, if you do you have any comment that you can make?

Draper. So we had our Board meeting today and our President of the European business was here. And he mentioned that we don't see any impact of this yet. Obviously, we don't know what is going to happen in the future. But as of right now, we don't see any significant impact related to this. So we'll keep monitoring it closely. And if anything changes, obviously, we'll let you know.

[Interpreted] And lastly, sorry, I have a question regarding special project. The Numaligarh India refining construction, whether the construction has completed and from next year, I think it was a HYCO project. So is it going to contribute to your business, HYCO business?

[Interpreted] India's HYCO project has completed, yes, it's construction. And it has been delayed just a little bit than planned. However, in the overall construction, we have made adjustments in the overall scheduling. Therefore, on a timely basis, I think we have completed the construction. And the actual operation will start shortly.

[Interpreted] Mizuho Securities, Mr. Yamada, please.

May I ask you several questions in English. The first one is basically the electric materials. As Hamada-san said that the China seems to be probing the -- I'm sorry, dichlorosilane, DCS. I think anyway, Japanese corporations are basically dominant in this field. Hence, the Chinese probe seems to be kind of -- has some side agenda. So how are you planning to cope with that? And then is there any strong or major implication or impact as a result of the geographical tension mounting between China and Japan in the administrative business?

[Interpreted] Please allow me to respond in Japanese. Currently, it is under investigation. So what will be the impact or the magnitude of impact? Well, as far as we can investigate is that what is the amount and the volume of this material to be shipped and to whom we are shipping to, that is what we study. Well, the grounds for dumping investigation submitted by the other party is currently under scrutinized. But whether it would be a huge impact or little impact, at this point in time, it is difficult to make such a judgment. So as far as we know, well, first of all, we have to study and examine and decide whether we will respond to this or not. First, we have to have a full study and there is a deadline. So towards the deadline, we will solidify -- examine the situation.

I do appreciate the wise comment regarding the accepting the note. And in relation to that, the -- according to the backlog, electronics backlog seems to be increasing. The overall amount seems to remain similar at around JPY 150 billion outstanding. Is this a reflection of the increasing demand in Americas as well as in other nations? Or is this just basically reflecting the project progresses in Japan?

[Interpreted] Thank you very much for your question. Well, first of all, what I can tell you is that in Japan, the major construction work or investment work for semiconductor was already completed. So this is already completed, reducing the backlog. On the other hand, in the electronics area, there are some facility-related construction work are available. However, details are yet to come. So on our end, we have a high expectation. So I sincerely hope that this will be added to the number. And talking about overall capital expenditure, Americas and Europe in different parts of the world, they are on an equal basis. Well, the major item was completed in Japan, and therefore, the ratio of backlog of Japan has been reduced. However, as for the overall value, it has been flattish. However, there are 6 order intake and 4 completed. Well, I cannot show you the breakdown in detail, but there is an increase in order intake, including the bigger one and the smaller one. This is the number we are seeing right now.

Last one, regarding the company's estimate revisions, according to the information shown on Page 23, the company's operating profit, operating income estimate has revised up by around JPY 3.3 billion, whereas the net income after tax for parent shareholder increased much more. What's the gap between the operating profit or operating income estimate increase and net income after tax increase?

[Interpreted] On this matter, we'd like to invite Alan Draper-san to respond.

Thank you for the question. This is Alan. One of the bigger items we have is in Germany, they changed the tax rule. They reduced the tax rate, and that has a pretty significant impact on the quarter and also year-to-date. So it's significant enough. You notice that our taxes did not go up that significantly, and our effective tax rate went down quite a bit, and that's mostly due to the German situation. We always have a little puts and takes through the tax line, but that's one of the bigger items is related to the new German tax rules. And it's going to continue to decline, I think, through the 2030 is, I believe with the tax, what the government said. And they're doing that to stimulate the economy and more growth and investment. Thank you for the question.

Thanks for the elaboration. So we expect the European income would be less subject to less taxation for next maybe 2, 3 years' time horizon because of the German tax reforms?

Yes. I think overall, when we did this the entry, it's really a deferred tax item that comes through. So it's what your expectations are. So I think it considered what the future rates were as long as they were locked in. If the government and the legislation has finalized it, then it would be coming into play, and I think that was the case. So I can't give you a perfect answer, but I have a feeling most of it's been taken into consideration in this quarter as a result of...

[Interpreted] Morgan Stanley, MUFG, Mr. Watanabe, please.

[Interpreted] I'm Watanabe from Morgan Stanley. My first question is regarding the segment in Japan, if you can supplement a little bit. In comparison with the second quarter, this segment alone margin is decreasing from the -- is it because of the completion of installation of some of the projects? Or are there any other factors? And as for the installation, you said that orders are increasing. But from the fourth quarter, is it -- will that -- will they be contributing to the revenues in the fourth quarter? That's my first question.

[Interpreted] As for the margin of Japan for construction, the margin is relatively good in Japan. But with regards to margin in Japan, it's not only that, but power cost is continuously been contained in a very good level, a slight decrease as well. So presuming from that, there is not much of a big change in the margin. The largest factor perhaps is that CO2 gas volume and the balance of supply and demand, I would not say is deteriorating, but that could be causing a little bit of a difference in margin. That is my interpretation. And in the fourth quarter, whether the construction projects -- well, there will be some posting of revenue. However, there will be no major project completing in the fourth quarter according to my memory. Therefore, it will be from next year onwards that large numbers will be reflected for the construction project.

My second question is about the United States, the Americas. In the second quarter's briefing, you said that the U.S. margin as of September is slightly below 15%. It has improved to close to 15%. You said we can highly expect in December and I think you were right. Now the 15.1% in December, the background, what has been improved from September? Is it the new plant operation? Or is it the profitability of existing business? So -- and are there any additional factors that we can factor in, in the numbers of January to March?

[Interpreted] As for Americas, United States, as I touched upon earlier, the first half was not very good, and we had expectations that we will grow in the second half. And in the third quarter, the first half of the third quarter was not very good. As I mentioned, we have decided to be more active and aggressive in pricing and our operational excellence, the improvement of productivity or the improvement in transportation costs, we have thoroughly worked on these projects. And these have been planned -- and when we compare the first half and what we had planned, there were a great gap in the numbers. So we have aggressively worked to correct that. And those efforts have been reflected in the third quarter results.

[Interpreted] So in that sense, the fourth quarter, we will see a further improvement. Is that correct?

[Interpreted] Yes. As for pricing, we will continue. And we also are starting new pricing initiatives as well. If there's anything to add from Alan?

For the question. Just one thing to add. We are expecting an uptick in the margins. However, you've probably seen in the news, there was a major winter storm that went through the United States. I think it affected about 3/4 of the country. That obviously caused some headwinds. So that will be a little bit of a negative. So we were expecting a pretty good improvement in the fourth quarter. We're still expecting an improvement in that quarter, but the winter storm definitely caused some headwinds that we weren't expecting. So I'm sure you saw it in the news, but that's going to be a little bit of a headwind, but we still should be seeing some positive momentum on margins.

[Interpreted] So your plan does already factor in the winter storm. Is that correct?

Our guidance that we provided of JPY 196 billion of core OI does include the storm. So we did include that since it occurred about 10 days ago. However, there's -- when you talk specifically about the U.S., the U.S. probably shifted a little bit from what we thought it was going to do at the beginning of the month. So -- but our forecast does include the winter storm.

[Interpreted] Now there was some trouble for 5 minutes, the English channel was not effectively working. So sorry for some technical trouble for English channel. Now let me continue Omura-san from the UBS Securities, please.

[Interpreted] I am Omura from UBS Securities. My first question, well, now I'd like to ask you about Europe, which was not so asked so far. The 20% or more, that is the margin for the third quarter, which is quite a high level. Only looking at the first half, it was quite high, but now the margin has further increased in the third quarter. What is the priority of running the European business? So I would like to check that the pricing or the cost reduction or the top line increase, what will be the major factor for the margin? So to how much extent would you like to see a margin increase to satisfy you as a company?

[Interpreted] Later, we'd like to ask Alan-san to supplement my comment. Well, rather than the prioritization, the maintenance of the pricing or the raising the price or as a manufacturer, cost reduction or improving the operational efficiency, they are all facilitated in parallel simultaneously. At the end of the day, looking at the results, well, there might be a difference in the plant utilization. And therefore, even if you take action, the end results may vary. So there might be a margin of error. So should we first raise the price? Or should we reduce the cost? So it does not mean we are running the operation by having any prioritization. No, no, that is not the case. We are able to continue the decent margin level that is because of the fact that we have continuously working on these efforts simultaneously. If you have additional comments, Alan-san, please?

Thank you, Hamada-san, and thank you for your question. Overall, when you think about the margin side, one of the things we've been trying to have a mindset change across the organization is that we can have continuous improvement across the organization. So we're always going to be trying to push the organization margin -- for margin improvement in a sustained way. So that's our goal. And to get sustained growth, we'd love to see volume growth, if we can. If we can't get volume growth, we're also going to be pushing on price and productivity. But our goal, as I've mentioned to many of the analysts and investors is try to get at least 50 basis points of EBITDA margin improvement a year and make sure that we're growing our profit faster than we're growing sales. So we're going to continue -- doesn't matter what margin level the European business gets to, we're going to continue to try to drive them further and make sure their President of the business continues to drive their organization further as well. Thank you very much.

[Interpreted] My second question, Thermos business, what is your take on the Thermos business right now compared to other businesses, be it revenue growth or the margin improvement. There might be a difference in direction and the magnitude compared to other businesses. And what is your take on the synergy with other businesses in the new midterm business plan, what is your positioning of Thermos? Do you have any take on that?

[Interpreted] Thank you very much. Well, at Thermos, well, we have explained the background or the history of Thermos. Setting that aside, for 30 years as a B2C business, they have been operated independently. Therefore, they have made their capital expenditure and working on the productivity gain, marketing and pricing. So they are different from the industry gas. So the perspective or the angle is different. So Thermos, in different parts of the world, location, including small one in Japan, we have 5 facility for production. So they have their own business plan. And based on that, they will go ahead with their business as a holding. We would like to support the Thermos business. So we are not demanding the synergy with the industrial gas. We are not pushing that. In the area where we are running the industrial gas, we believe that the market is very important. So we have to listen to the voice of our actual users. So from that perspective, even in the area of industrial gas, I think that Thermos has a good marketing methodology, which will be effective in the industry gas. Well, talking about the Thermos business, the business is promoted together with a partner in a different country, Asia, Japan and Korea, America, well, the volume is not so huge, but Europe, so we have the sales network in different parts of the world and the situation varies from one country to another. And the users' preference and the orientation is different. So single-mindedly having a heavy production in one particular production site, rather than that, listening to the voice of the market, we will have a production in different sites. Currently, this does not require significant capital expenditure because we have a preexisting plant with sufficient production capacity to secure sufficient cash. That is the nature of this industry. From that perspective, as a parent and a holding, we would like to render support to Thermos business. Will that do?

[Interpreted] Yes. Thank you.

Next, [indiscernible] Asset Management, Mr. Hayashida.

[Interpreted] Hi, I'm Hayashida. I have a question regarding electronics gas. In the third quarter, the electronic gas revenue sales year-on-year, how much did it grow? That's my question. In Asia and Oceania, excluding currency impact, it grew 18%. So is it equivalent to that or not? That's my first question. And on a related note, as you commented, I think you are starting to see a boom in this area. And then towards next year, what kind of growth are you expecting next year, just a rough image?

[Interpreted] Thank you very much. Right now, the electronic gas figures are not in my hands right now, so I cannot give you specific numbers. But maybe if Alan has some numbers, I would like to have him answer. But including memory, it is true that manufacturing is increasing. In particular, Korea, a large manufacturer and a Japanese manufacturer and famous manufacturers in the U.S., they are increasing gradually the production level. And as was mentioned, 18% is a number that we are seeing. It depends on the product, but similar to that level, I think, is being enjoyed throughout the world. Semiconductor manufacturing factories process is largely changing recently. They are not using -- in some cases, they are using different gas from conventional gas. So how much new gas they are going to use and how we are going to evaluate that, we would like to have such information and how to respond to their request is something that we need to figure out. But it's not that all gases can be produced locally and shipped and used locally. Some may have to be manufactured in Japan and shipped out to U.S., et cetera. So how much gas is used where, of course, we need to do some marketing investigation. So that will be linked to the manufacturing capability of companies. And if Alan, you have the numbers, can you explain?

Yes. This is Alan Draper. So right now, we are not disclosing, we don't disclose kind of volumes by business segment. We just started disclosing volumes for the total company maybe 2 years ago, and we're assessing as an organization whether we want to start disclosing more to the investors. So we know it's something that everyone is asking for. We just want to make sure that we feel comfortable and we may do that going forward. So unfortunately, we can't disclose that now. But I will say the East Asia Electronics business is doing a lot of the carrying when you strip out the acquisition, they're carrying the weight to get to positive volume activity. Thank you very much.

[Interpreted] With this, we would like to conclude the Q&A session. Prior to the conclusion, I would like to make some announcement. On the 31st of -- on the 30th of March, we will have the announcement for the new midterm plan. And March 24, we will have an announcement of the midterm business plan. So if you haven't replied to your participation yet, please let us know. With this, we would like to conclude the earnings call. The contents of today's call will be made available on our corporate website IR page later this evening. If you have any questions or require any further information, please feel free to contact our IR department. Thank you very much for taking the time to join us today. We truly appreciate your continued support. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]