UACJ Corporation (5741) Earnings Call Transcript & Summary

Let me introduce today's attendees from the company, Shinji Tanaka, Representative Director, President.

My name is Tanaka.

Joji Kumamoto, Chief Executive, Corporate Strategy Division Director, Senior Managing Executive Officer.

My name is Joji Kumamoto.

Kozo Okada, Chief Executive, Finance and Accounting Division Director, Executive Officer.

My name is Okada.

Keizo Hashimoto, Chief Executive, flat-rolled Products Division, Executive Vice President.

My name is Hashimoto. Flat Rolled Products Division, Executive Vice President. My name is Hashimoto.

I am Kaoru Ueda, General Manager, IR, Finance Department, and I will be moderating today. Tanaka, Representative Director, President and Chief Executive Officer, will now explain the results for Q2 of FY 2025, which were announced today. Please join us while reviewing the presentation materials. Mr. Tanaka, please.

I am Tanaka. I would like to present our financial results for the second quarter and the first half of fiscal year 2025. I will explain using the PowerPoint slides. First, on Page 1, I will explain the key points of the first half results. The left-hand side shows the first half results and the right side shows the full year forecast. Starting with the first half results, please refer to the bottom section below the table on the left. This section shows the changes in the business environment during the first half, particularly in this first half, persistently high raw material prices globally in Japan, Thailand and the U.S. impacted the profits. Additionally, exchange rate fluctuations, especially the strong baht and weak dollar weighed on the profits. On the other hand, as mentioned during the first quarter results briefing, recovery trend, including resolution of one-off factors began in the second quarter. Overall, global demand for can stock, particularly in North America remained strong. Reflecting this, our results show sales volume increase of 30,000 tons to 660,000 tonnes. Revenue increased by JPY 53 billion to JPY 540 billion and business profit decreased by JPY 13.1 billion to JPY 16.9 billion, and net profit was JPY 7.4 billion. The right-hand side shows the full year forecast. Please refer to the section below the table. The business environment for the second half is outlined. On the second half environment, domestically, price revisions will continue from the first half. Some were concluded in the first half, while others will take effect in the second half, meaning price revision effects will materialize in the second half. On the other hand, as we will explain later, changes in product mix will occur due to factors such as a slightly delayed recovery in thick plates. Meanwhile, on TAA in the U.S., the cost advantages from procuring recycled raw materials will significantly contribute starting in the second half. In Thailand, the effects of price revisions will also materialize. However, factors like the strong baht and exchange rate fluctuations are expected to carry over somewhat into the second half. Considering these changes in the business environment, the upper section shows the projected sales volume, revenue, business profit and other figures. For sales volume, we expect approximately 1,347,000 tons, which is largely in line with the forecast announced in May. On revenue, we project to reach JPY 1.1 trillion, an increase of JPY 60 billion, while maintaining the business profit forecast at JPY 46 billion. Net profit is revised upward by JPY 3 billion to JPY 23 billion. Based on these results and forecast revisions, we plan to revise our annual dividend upward by JPY 2 from the JPY 40 announced in May to JPY 42. Now let me proceed to the specific explanation for the first half and the full year. First, regarding the first half results. As mentioned earlier, revenue increased by JPY 53 billion to JPY 540.1 billion. Business profit was JPY 16.9 billion, and net profit was JPY 7.4 billion. Regarding business profit, specifically, factors such as the rise in prices for recycled raw materials, which saw global price increases contributed. Also, the appreciation of the Thai baht particularly has compressed the business profit. Later, I will present a flow chart to illustrate some points in which I will explain the details more concretely. Page 5 shows the sales volume of flat-rolled products by type. The left-hand side shows the first half of fiscal year 2024 and the right side shows the first half of fiscal year 2025 for a comparison. Looking at the total, we achieved 660,000 tonnes, an increase of 30,000 tonnes compared to FY '24. Please see the lines below the total. Here, we show the volume changes in the Japanese and overseas markets. In the Japanese market, there was a decrease of 12,000 tonnes, while in the overseas markets, there was an increase of 42,000 tonnes. This means the decrease in the Japanese market was offset by the increase in the overseas market. Looking at the breakdown by product, the increase of 30,000 tonnes was primarily driven by can stock accounting for 28,000 tonnes of the total increase. Sales of can stock were robust in the U.S. and Thailand contributing to the overall sales growth. Other categories such as foil and IT materials remained largely at last year's level. Automotive materials also decreased by 2,000 tonnes, but remained near last year's levels. On the other hand, while we had anticipated a recovery in thick plates around the middle of the first half, unfortunately, the recovery is still somewhat delayed. Overall, we achieved a volume of 660,000 tonnes, an increase of 30,000 tonnes. Next, let's look at the changes in business profit and adjusted EBITDA from the first half of last fiscal year to the first half of this fiscal year. The change is from JPY 30 billion to JPY 16.9 billion. Starting from the left, this is the performance of UATH in Thailand. I will also explain in the individual segment section that in Thailand, while we have secured solid sales volumes, the impact of exchange rates and the persistent high cost of raw materials, particularly recycled raw materials, resulted in a negative impact of JPY 2.5 billion. For TAA in the U.S., inflation, rising costs and high costs of recycled raw materials were the factors. The effect of recycled raw materials costs will begin to contribute positively in the second half in the U.S. But in the first half, it had a negative impact, resulting in a decrease compared to the previous year, including other factors such as the impact of exchange rates, the result was a decrease of JPY 5.6 billion year-over-year. Another significant factor was a JPY 4.7 billion negative impact from cost and utilization ratio differences. This was within Japan, primarily due to rising cost of recycled materials and inflation-driven increases in logistics and auxiliary materials cost, resulting in a JPY 4.7 billion decrease. Adjusted EBITDA was JPY 36.2 billion. The next page shows the consolidated statement of financial positions. Total assets amounted to JPY 1,055 billion, an increase of JPY 35.5 billion. Notably, inventories increased by JPY 14.1 billion. This reflects the impact of rising prices for aluminum ingots and other materials. Additionally, property, plant and equipment increased by JPY 12.2 billion. This increase in fixed assets is due to the smooth progress of planned projects such as the expansion of UBC treating and processing equipment at Fukui, the thick plate of Quenching furnace at Fukuya and the scrap processing line at TAA. Total assets reached JPY 1,055 billion. On the other hand, borrowings increased by JPY 25.1 billion, resulting in a total of JPY 365.8 billion. Page 8 shows the consolidated cash flow statement. The left side is the consolidated cash flow. In the first half of fiscal 2025, pretax profit was JPY 14.5 billion. Depreciation and amortization was JPY 19.3 billion, resulting in operating cash flow of JPY 28.1 billion. CapEx amounted to JPY 35.7 billion, resulting in negative cash flow of JPY 7.6 billion. To the right, we show the interest-bearing debt balance and D/E ratio. As mentioned earlier, interest-bearing debt balance was JPY 365.8 billion. The debt-to-equity ratio stood at 1.1x at the end of the first quarter of fiscal year '25, but was kept at 1x at the end of the second quarter. Now, I will briefly explain the situation in each individual area. This is on Thailand UATH. As noted in the first half overview on the left, global demand for can stock is expanding as anticipated, as mentioned in the beginning. Sales from Thailand to North America, the shipments are continuing as planned despite tariff impacts, which are partially borne by customers. In the ASEAN region, we are currently implementing price revisions, partly due to the abolition of China's value-add tax refunds. Including these factors and the significant pressure from foreign exchange impacts on profitability, sales volume for the first half of fiscal year 2025 reached 157,000 tonnes, an increase of 8,000 tonnes year-over-year, and the revenue increased by JPY 4.5 billion to JPY 99.2 billion. Business profit was JPY 500 million. The right-hand side shows the quarterly trends for sales volume and business profit. Next, I'd like to discuss the situation in the U.S. The U.S. market also showed the expected expansion trend in the first half. Production has continued at a high level. However, in the U.S. as well, the surge in recycled raw material prices had an impact during the first half. While sales volume increased by 23,000 tonnes to 250,000 tonnes, business profit ultimately decreased by JPY 5.6 billion to JPY 10.3 billion. In particular, the surge in raw material prices had a squeezing impact in the first half, but this will fully recover during the second half. Moreover, in the United States, the sales conditions have been progressing favorably. And contracts have been secured through fiscal year 2028. Next, regarding the U.S. on UWH, our automobile parts business. As stated in the first half overview under business environment, the shift in the U.S. tariff policy has increased uncertainty in the automobile industry to date. However, during the first half, there was rush demand before the termination of the tax incentive system for EV purchases at the end of September 2025. As a result, the first half ultimately achieved results comparable to the previous year. Now moving on to Page 13. I'd like to discuss the business performance outlook for fiscal 2025. This represents our full year business forecast for fiscal 2025. First, on the right-hand side, we have outlined our assessment for the business environment. As was mentioned earlier, global demand for aluminum cans continues to progress steadily. Additionally, the effects of price revisions in Thailand and Japan will gradually materialize from the middle of the first half through the second half. In Japan and Southeast Asia, we recognize that raw material prices remain high and that foreign exchange impact of the appreciation of the Thai baht. Also regarding recent topics, I believe many of you are interested in this topic, U.S. tariff policy. While we need to monitor developments closely going forward at present, no major impact has emerged. Additionally, although some disruptions have occurred in the supply chain as a result, but the impact has been minimal so far. On Page 14, we have provided a more detailed explanation of the key points and changes in the business environment. While I cannot cover all items listed here, please first refer to the top row regarding demand trends. From left to right, we have listed Japan, North America, Southeast Asia and others. For can materials, conditions remain steady, progressing favorably across all markets. On the far right, under beverage cans, it says that the European market is robust. This indicates that shipments to Europe are continuing in addition to the U.S., Japan and Southeast Asia. On the other hand, in Japan, semiconductor manufacturing equipment and construction materials continue to experience somewhat delayed recovery or show weaknesses, which is lingering at present. Furthermore, regarding supply chain development, there have been reports of customer system failures in Japan, but the impact has been limited. Also regarding the production disruptions at North American rolling mills mentioned in the automobile materials or automobile-related materials, additional shipments of cans were made from Japan to the U.S. Moreover, for automotive-related materials, due to the impact of U.S. tariffs and concerns about semiconductor supply, there is an uncertainty in this area, so we need to monitor the situation closely. Regarding revenue and profit, there are both positive and negative factors. In Japan, the effects of price revisions will materialize. In North America, for can materials, cost benefits from recycled raw materials will contribute significantly from the second half. In Southeast Asia, some positive effects will emerge through continued price revision negotiations. On the other hand, we need to continue monitoring the surging raw material prices and foreign exchange fluctuations going forward. Based on these circumstances, our full year forecast for fiscal 2025 is shown in column C. Revenue is projected at JPY 1.1 trillion. The far right side represents a comparison to our May forecast showing an increase of JPY 60 billion. Business profit remains at JPY 46 billion as projected in May, and net profit is expected to be JPY 23 billion, an increase of JPY 3 billion. Based on this upward revision of JPY 3 billion, we plan to revise our annual dividend upward by JPY 2 per share from JPY 40 per share in May forecast to JPY 42 per share. Next, let me explain sales volume by product type. The overall picture is roughly similar to the first half, with actual first half total volume reaching 1.347 million tonnes. The rightmost column shows changes compared to May. For care materials, foil, IT and automotive materials, results are generally as announced in the first half. However, regarding thick plate, while we have anticipated at the time of first half announcement that the segment would recover from the second half. Unfortunately, the recovery is still delayed. However, overall, the situation is almost in line with the forecast we made. Next, let's look at the business profit analysis. This represents the latest full year outlook comparing fiscal years 2024 and 2025. Business profit remains unchanged at JPY 46 billion for the full year compared to last year's JPY 45.9 billion, though some slight changes have occurred in individual items. First, regarding UATH. Similar to the first half, while sales volume is increasing, recycled raw material prices remain high and the appreciation of the baht persists. On the other hand, price revisions are helping recovering the performance, ultimately resulting in a decrease of JPY 1.4 billion. Regarding TAA, from this second half and onward, cost benefits from recycled raw material prices will take effect. However, on the other hand, there are cost increases due to inflation and foreign exchange losses from yen appreciation. For the second half, after incorporating these effects, we project an increase of JPY 2.5 billion. Next is the sales-related variance, which shows a positive JPY 2.3 billion. This increase is resulting from price increase taking hold. As for cost and the utilization ratio, the cost increase from recycled raw materials in the first half remains. And there are also price increases due to inflation in logistics and subsidiary materials. We are conducting price negotiations with customers, both domestically and in Thailand. While these will gradually improve in the second half, but the full year result is a decrease of JPY 4.7 billion. Additionally, regarding energy and added alloys, there is an increase of JPY 1.8 billion due to unit price revisions. We continue revising prices while discussing these matters with our customers. Page 18 regards our shareholder return policy. Our policy of stable and continuous dividends remains unchanged. This time, with the upward revision of the net profit to JPY 23 billion, we are revising our annual dividend upward to JPY 42 per share, an increase from last year. This revision of annual dividend to JPY 42 per share will result in the dividend payout ratio expected to be 33.1%. The final section concerns corporate value enhancement. Please refer to Page 20. This covers the period from the first half to the second half. In fiscal 2025, we acquired an A credit rating and our beta value has shown improvement, resulting in reduced capital costs. The lower right shows the trends in stock price and PBR. The left-hand shows data from April 2022. At that time, our PBR was approximately 0.5x. But based on the stock price at the end of last month, October 31, 2025, PBR has grown to 1.21x. Going forward, we aim to achieve a further increase in PBR. On Page 21, this fiscal year, following last year, we received the first place in the Excellence in Corporate Disclosure Award for the second consecutive year. Going forward, we will continue to create opportunities for dialogue with our stakeholders and maintain thorough information disclosures. On Page 22, we have launched the ALmitas SMART brand. We provided information regarding the release of 100% green materials certified through the mass balance approach for general materials. Finally, regarding deepening human capital management, we are deploying activities to intensify our efforts in this area with the goal of fully utilizing the human capital of each and every employee. The final page shows the trend in adjusted EBITDA up to this point. I have thus far discussed our first half results and full year outlook. As I mentioned earlier, due to the impact of U.S. tariffs on can materials and automotive materials as well as supply chain disruptions, uncertainty continues. However, we are committed to achieving a solid recovery in business profit in the second half and driving revenue growth. Finally, we have summarized our upcoming IR events. We will be arranging a sustainability briefing on November 26 and business briefing on aerospace and defense materials on December 22. We cordially invite you to participate in these events. That concludes my presentation. That concludes the presentation from our company.

We will now take questions from the participants. Please note that we may refrain from answering questions if the content could potentially impact our business activities. [Operator Instructions] The first person to ask question is from SMBC Nikko Securities.

Thank you for this opportunity. I would like to confirm a very important point on Page 31. The TAA business profit excluding inventory effects is shown as JPY 27.4 billion. I think this should be JPY 21.4 billion, correct? This is the point I would like to verify it. Please check your calculation if you can confirm and get back to me later. Looking at the calculations for the first and second halves, the figure derived by subtracting the disclosed TAA and UATH and UWH from total profits shows first half business profit at JPY 5.2 billion, second half at JPY 16.5 billion, resulting in a significant jump to JPY 21.7 billion. This significant jump from the first half to the second half profit is largely due to revenue growth outside, overseas subsidiaries. However, based on your explanation, it seems you are referring to the effect of price increases gradually taking hold. And regarding the significant jump in the non-overseas subsidiary segment from the first to second half, I would like to ask for an explanation. The second point concerns the U.S. Looking at the premium in the Midwest, it appears very high, while the spot market for scrap hasn't risen much. So the margin looks extremely high at a glance. I was expecting the TAA metal benefit showing up a little more, but is that not the case? Or -- and finally, could you clarify your perspective? If you achieve the results for the second half of this year, I believe the business profit for the second half would be JPY 29 billion. Doubling that gives JPY 60 billion, is close to the midterm plan target. If this second half profit is realized, does it mean your company's actual capability is approaching the midterm plan target? So these are my 3 questions.

Thank you for your question. Regarding your first point, I believe your question was about the drivers of profit growth within Japan in the areas outside overseas operations. On this point, first, price negotiations have progressed significantly from the first half to the second half. The fact that major effects will emerge in the second half is likely the most significant factor. Additionally, changes in product mix such as shifting some product lines should also become major positive factors. On this point, Hashimoto will provide supplementary explanation.

Based on the calculation, that is the situation. Basically, domestically, we started price negotiations this January in response to cost increases from last year. The main impact will be reflected starting in the second half with some effects beginning midway through the first half, leading to increases heading into the second half. This applies to sheet products as well as extruded products and foils, and these are included here. Additionally, for sheet products within the flat-rolled product division, we have operations in Thailand and the U.S. We are reviewing the overall plan while considering the outlook for these locations to determine the appropriate level.

Understood.

Moving on to your second question regarding the U.S. premium and TAA, the perspective is that focusing on these might yield higher profits. On this point, it's true that in North America, the premium increase has significantly widened the spread showing a large difference. However, if we look solely at spot prices now, the difference naturally appears much larger. The key is our purchasing approach. Our current situation involves a balanced approach encompassing long-term contracts, spot contracts and recycled materials returned by customers. Our actual results suggest that the current spread alone doesn't fully explain the situation. However, starting in the second half, purchases will align with our procurement plan. So we expect profits in this area to increase significantly. However, looking at the business profit for the first and second halves, it appears flat or a slight increase.

If it is to JPY 21.4 billion, is it JPY 27.4 billion?

Full year, JPY 27.4 billion is the correct number. There was a misprint in the operating profit. So JPY 33.9 billion is the correct figure.

I see. I was surprised because I thought this was a point where the stock price might drop. I understand now. Thank you. Please address my third point. It seems like you will reach JPY 60 billion.

It's true that the second half will see a significant improvement. As for whether we can double that amount for a full year result, since we've just entered the second half, we need to assess the results of the third quarter to assess how much business profit we can expect for the entire fiscal year next year. The deviation from the midterm plan breakdown is due to factors such as strong baht affecting UATH. You want to maintain overall balance, not just focusing on the U.S. market through pricing, but growth across all locations. There are various positive and negative factors. So we intend to carefully assess each one while maintaining a solid overall balance.

Next, we would like to take questions from Matsumoto-san of Nomura Securities.

This is Matsumoto of Nomura Securities Matsumoto of Nomura Securities. First, regarding the chart on Page 28, the downward revisions for sales-related differences and cost utilization ratio differences seem to be quite significant. Could you please provide a more detailed breakdown of these? Second, regarding the Thailand issue, we always hear similar stories about exchange rates and such. Could you tell us what countermeasures you are planning to take?

Regarding the first point, sales-related and cost-related questions, Okada will provide a brief explanation.

Regarding the negative JPY 4.7 billion in sales-related differences, originally, as I mentioned earlier, our May forecast was heavily weighed toward the second half with high expectations for increased semiconductor demand. However, delays in this area have led to adjustments in profitability. The negative impact from product mix changes is significant, and we estimate this amount to be roughly JPY 3 billion. Additionally, regarding affiliated companies and the group companies, we have domestic operations like extrusion and affiliated companies. The overall impact from these totals to just over JPY 1 billion, which is also a major factor. From May to the current sales situation, the role margin and price increase situation are progressing as originally planned. Therefore, we are not fundamentally anticipating any significant fluctuations in this area. Regarding cost and utilization ratio, as Tanaka explained in the earnings presentation materials at the beginning, it's primarily costs. Inflation has caused labor costs, auxiliary costs and various other prices to rise more than initially anticipated. Please understand that over half of this approximately JPY 3 billion impact stems from this inflationary pressure.

This is Tanaka. Additionally, regarding the price increases due to inflation, we are currently proceeding by carefully consulting with our customers and incorporating these adjustments into future pricing. Did this answer your question?

This is fine. Thank you for my first point. The second point concerns how we will proceed with the Thailand operations going forward. It is true that currently, it is being pressured significantly by exchange rate impacts and raw material costs?

Regarding this point, the price we are implementing in the second half of the year will be a key pillar. Additionally, there is some room to increase volume. So we will focus on expanding volume while also steadily implementing price revisions. Furthermore, while immediate changes may not be feasible for long-term contracts, we believe there is still considerable room to review customer and product portfolio composition. We intend to advance our efforts to improve Thailand's business profitability by incorporating these aspects.

Next, we will take questions from Shirakawa-san of Morgan Stanley MUFG Securities.

This is Shirakawa of Morgan Stanley. I have 2 questions. Regarding the U.S. TAA on Page 28, JPY 8.6 billion improvement. Is this fully due to incorporating the improvement from the metal benefit? Also, given the current significant margin expansion, if it is JPY 8.6 billion, calculating based on 200,000 tonnes for the second half, it seems this might not fully reflect a $500 margin improvement to first and second half. Could you clarify the conditions used for this calculation? Second point concerns the domestic price revisions while we hope to see effects materialize from the second half onward, please tell us how much of this will remain as net profit in the next fiscal year and beyond. Regarding this year, on Page 17, the sales-related difference is a JPY 2.3 billion increase Y-o-Y. Is this entirely about pricing or is composition also a factor? I wonder how much of it is pricing and whether we should just multiply that by 2 for next fiscal year. Can you explain?

Regarding your first point about the composition of the metal benefit under the U.S. TAA, Okada will address.

Regarding your question on Page 28, whether JPY 8.6 billion is entirely from metal, raw material benefit. The answer is yes. While inflation and other factors certainly impact us, we have managed to generate this JPY 8.6 billion despite those challenges. That said, as Tanaka mentioned, this year's arrangements for procuring such metals and raw materials are already largely finalized. There is a lag of about 3 to 5 months from purchase. Therefore, you can understand that this JPY 8.6 billion is largely included in this P&L. We do hope for a slightly higher positive outcome, but the volume figures are based on this understanding.

On this point, the timing mentioned by Okada of about 3 to 5 months lag in impact manifestation, the U.S. tariffs were announced to be 25% in early February and then increased to 50% in June. Around that time, the spread began to widen sharply. So the impact will manifest from the second half of the year. Therefore, the effect is only for half a year. Conversely, this means the first half was based on higher raw material costs before the tariff impact. For this period, it is capped at JPY 8.6 billion. But going forward, it's likely to increase significantly. Now regarding the second point about price revision, this will be included in the next fiscal year and beyond. Hashimoto will first explain the situation, and then Okada will give an estimate of the likely amount. JPY 2.3 billion was mentioned. I think you were referring to Page 17.

Yes.

This represents the analysis of FY 2024 and the latest forecast for FY 2025. Since it pertains to sales-related factors, it incorporates not only the price increase component, but also changes in volume composition and other variables. This JPY 2.3 billion figure reflects the net effect of all sales-related pluses and minuses. It is not the exact amount of the price increase itself. Basically, we plan to pass on the cost increases shown to the right to our customers. Considering how these cost increases will play out starting next April, we will also negotiate going forward. Therefore, it's difficult to give a specific figure for the net increase next year. That is the answer to your question.

Understood. Regarding the first point, as a potential future risk, I understand that U.S. scrap prices -- UBC scrap prices haven't risen yet. However, steel dynamics and others ramp up going forward should we not consider the risk of scrap supply and demand tightening and margins shrinking next fiscal year?

Regarding tariffs, to be honest, it's difficult to predict whether it will increase from 50% to another percentage. This remains uncertain. However, our long-term scrap procurement strategy involves more than just spot purchases. We combine long-term contracts with strategic spot sourcing. It's not the case that raw material prices suddenly spike just because another mill somewhere starts up. So that is our strategy.

Next, we have a question from Mr. Ozaki from Daiwa Securities.

This is Ozaki speaking from Daiwa Securities. My first question concerns your decision to maintain the business profit forecast at JPY 46 billion for this fiscal year. Could you clarify the positioning of this figure? Given that positive impacts such as middle benefits at TAA were expected, I'd like to understand the rationale behind maintaining this forecast. Is it that you are maintaining JPY 46 billion on the premise of not changing the original figure while leaving some room for upside potential? Or is it positioned neutrally at JPY 46 billion because there are also stronger-than-expected negative factors in areas such as cost and sales-related variances? Does it actually contain some downside risk when considering the first half progress? Please explain the positioning of this JPY 46 billion forecast to the extent possible. My second question pertains to UWH. I believe earnings will deteriorate somewhat in the second half. Could you please explain the background of this and future improvement measures? That's all.

Let me ask Okada-san to explain the first point regarding our view on the JPY 46 billion.

I believe you are asking about our sense of where things stand. We view that the JPY 46 billion is achievable, and we do have expectations for upside potential. However, on Page 14, where we have organized our environmental assessment covering the 3 regional situations, some uncertainty still remains in these areas. We believe that we must firmly achieve this JPY 46 billion target. That is a prevailing view. And personally, I believe that we have upside potential. Did we answer your question?

Yes.

Regarding the second point about UWH, Kumamoto-san will address your point.

Indeed, we view that the second half is somewhat weak. For example, media reports have it that automotive makers are reviewing production for EV-related matters. In reality, our inquiries are centered on EV-related business and request for vehicle lighting. We believe that this could become a headwind, although it hasn't materialized yet. And we have incorporated a possibility of some weakness. That is the reason why we have taken a slight caution for the second half. As for countermeasures, we need to improve production efficiency and reduce production costs. There's no magic wand here. So we are discussing how to weather this by steadily accumulating these efforts. I hope that answers your question.

Next, we have a question from Mr. Goroh from UBS Securities.

This is Goroh from UBS Securities. I have 3 questions. The first is about volume changes. I believe you explained the areas where demand fell short of expectations such as thick plate. In previous briefings, you mentioned, for example, that exports from Japan to Europe are covering domestic weakness to some extent. Or alternatively, regarding shipments from Thailand to North America, you indicated that these can continue for the time being as long as they remain within the quarter limits. Although, there may be some adjustments next fiscal year with the start-up of upstream processes in North America. Now that you have revised your outlook based on the current demand conditions, regarding the volume recovery and expansion scenarios for next fiscal year, for example, can we still view that the sales expansion scenario you originally envisioned for Thailand as achievable for our next fiscal year under the current conditions? I understand that volumes are difficult to predict, given the interregional shifts or variances. But could you confirm whether you need to change your previous outlook? The second point is about the time lag in price pass-through this time. You mentioned that you have been able to anticipate cost fluctuations. Regarding your multiyear efforts and price revisions, I have the impression that you are taking the lead as an industry leader. I also sense that the agility to pass through costs flexibly in a timely manner, may not be as strong as initially. Beyond the annual price negotiations, is there any room to respond flexibly to prices, costs and risks and other moving parts? Could you clarify the pricing mechanism once more? The last point is about your policy on CapEx and cash flow. This fiscal year, I believe that cash outflows are running ahead. I assume that this is because the CapEx plan for the midterm plan period are proceeding ahead of schedule. Could you please confirm whether my understanding is correct that as cash outflow subside in fiscal year's 2026 and 2027, financial conditions and free cash flow will improve? I believe that there may be also an impact from inflation. So please, could you please comment on these as well.

Thank you. Regarding the first point and second point. First, with the volume changes and whether we can maintain the same outlook as before. And second, regarding the price pass-through and the current timing situation, I'd like Hashimoto-san to address these points.

First, let me explain about Europe-bound shipments and Thailand regarding your first question. For Europe-bound shipments, the situation remains unchanged. As reported earlier or previously, glass bottle cost increases have an impact. And with can material shortages in Europe, we are receiving requests from European shipments from customers we are doing business with in Thailand and the U.S. to increase volumes. In response, we are directing spare domestic production capacity towards Europe. We are also working to increase volumes by improving domestic productivity as much as possible. Prices have also improved considerably, so I can report that this trend remains unchanged. Regarding Thailand, U.S.-bound shipments currently in place will basically continue through the first half of next year. Even after that, although, a new mill will be starting up, customers are being quite cautious given that there's the initial start-up phase. And depending on the situation, we are also hearing the discussions about continuing as is. In that sense, we expect a certain volume of U.S.-bound shipments to continue. As for new developments, regarding Europe-bound shipments, the situation has changed so that the shipments from Thailand to the U.K. are now tariff-free. Contracts in this area are also progressing. Thus, even if U.S. bound shipments from UATH decreased somewhat, we don't expect that the portfolio to deteriorate due to securing European-bound volumes. Regarding the second point about the agility of price revisions. We are actually receiving stern feedback from customers that the frequency of price revisions has increased. Since costs are rising significantly every year, we are monitoring the situation closely while making individual requests or requesting improvements based on productivity by product type. So we are proceeding by making requests when circumstances arise. And this takes place roughly once a year, and we'd like to continue that we've been proceeding -- we'd like to convey that we've been proceeding in this matter over the past several years.

Regarding first point about volumes, we are securing overall volumes that exceed last year. While thick plate and other products have declined domestically due to the product mix change, we are expanding exports to Europe as Hashimoto-san indicated earlier, to properly secure overall volumes. Although circumstances are changing in each region, North America, Southeast Asia and Japan, we intend to proceed by effectively coordinating among our 3 global bases to secure volumes and to ship to the right places at the right time. Regarding the third point about CapEx, I'd like to ask Okada-san to address the question.

Regarding your question, in our original fourth midterm management plan, we plan to allocate JPY 160 billion from operating cash flow to CapEx. This is furthest on maintaining fiscal discipline. Within this framework, we believe that the business profit towards 2027 business expansion and advanced investments toward 2030 will be spread across 2024, 2025 and 2026. However, while monitoring our financial condition, we intend to proceed with a firm control on the financial side. That is our stance. Additionally, regarding some climate change and environmental investments, these may be eligible for subsidies and other support. Therefore, we intend to utilize these subsidy programs while striving towards corporate value enhancement. I hope that answers your question.

Is it correct to view that free cash flow will improve? Can we expect that cash outflows to peak out and free cash flow to improve overall?

Yes, you can expect that direction.

As we are approaching our scheduled time, I'm afraid we will take one final question. Mr. Shibata from SBI Securities.

This is Shibata from SBI Securities. I have one question. It is about foreign exchange impacts. Based on your briefing materials, it gives the impression that you are basically neutral to the dollar, but I'd like to confirm whether you are truly neutral. For example, your exchange rate assumption is JPY 148 to the dollar, but what is the impact of a weaker yen?

To clarify your question, are you asking the impact -- what impact it will have if the yen weakens?

Yes. Currently, it stands at JPY 145. While, it is on the weaker side than your assumption currently, but what impact will it have if yen weakens.

I'd like to ask Okada-san to address that point.

Regarding our business, the depreciation of the yen favors our business. If we calculate based on favorable conditions, future fluctuation impacts could become significant. Therefore, we consider our business plan each time based on the current recent average as our baseline. As for whether JPY 140 or -- as for whether JPY 145 is solid since we have indeed exceeded JPY 150. Currently, the translational adjustment to the yen will work in our favor. I hope that addressed your question.

Additionally, regarding the foreign exchange, of course, yen dollar is certainly a factor, but baht dollar has a considerable impact, so we made the current assumption by looking at both together. I hope that addressed your question.

Thank you very much for your questions. As we have reached our scheduled time, we'd like to conclude today's briefing session. Thank you very much for participating today despite your busy schedule.

As I mentioned at the beginning, it appears that highly uncertain conditions will continue throughout the second half and full year. So we have developed this full year forecast while monitoring various aspects. The pace of environmental change around us has become quite intense. So we'd like to keep our antennas up to identify what environmental changes are occurring. I don't believe that these are all risks, there should also be opportunities. So we intend to proceed in a manner that firmly converts these into earnings. Moreover, as members of the aluminum industry, we will continue to deploy our activities by leveraging the characteristics of aluminum to work towards the realization of a circular society and the resolution of social issues while firmly adding value to aluminum so that these efforts contribute to revenue and profit. That is our basic policy going forward.

Thank you very much for participating in today's earnings briefing over this extended period. That concludes UACJ Corporation's Q2 Financial Results Briefing for Fiscal Year ending March 2026. Thank you very much for your participation. We will continue to strive meeting your expectations from our shareholders and all stakeholders. We look forward to your continued support and encouragement. Thank you very much for taking time out of your busy schedule to attend our briefing.