UACJ Corporation (5741) Earnings Call Transcript & Summary

I will introduce company's attendees to this briefing session. Representative Director and President, Shinji Tanaka.

I'm Tanaka. Thank you.

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

I'm Kumamoto. Thank you.

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

I'm Okada. Thank you.

Executive Vice President, Chief Executive of Flat Rolled Products Division, Keizo Hashimoto.

I'm Hashimoto. Thank you.

I'm Kaoru Ueda, General Manager of IR in the Finance Department. I will serve as your MC today. Nice to see all of you. Now I will give the microphone to Mr. Okada, Chief Executive Finance and Accounting Division, to give presentation on the third quarter results for fiscal year 2025. Please follow the presentation materials. Mr. Okada, the floor is yours.

I will explain the details of the financial results for the third quarter of fiscal 2025. At the lower right of the slide, you see the slide number. I will call out the slide numbers as I go. First is Slide 1. This is a summary of our financial results for the third quarter of fiscal 2025. I will explain the details in the following slides, but I would like to give you an overview here. In the third quarter, global can stock demand grew steadily. Both sales, volume and revenue exceeded previous year figures. On the profit side, the company was able to reduce the cost by increasing scrap processing capacity in the U.S., and we saw effects of increasing exports from Japan and of price revisions. On the other hand, there was an impact of foreign exchange rate fluctuations as well as surge in uncertainty in North American automotive industry. Because of this, the business profit was significantly down by JPY 13.1 billion for the first half year-on-year. In the cumulative results in the third quarter, there was an improvement year-on-year. We finished at negative JPY 7.8 billion. Next is the full year forecast. Based on the assumption that current business environment in the Flat Rolled Products business would continue, the company will revise its forecast upward. Compared to the figures we announced in the last results briefing in November for business profit, we will add on JPY 2 billion, making it JPY 48 billion with a net profit of JPY 27 billion, up JPY 4 billion. Based on that, the company will also increase the forecast for annual dividend by JPY 3 compared to the announcement in November, which would make dividend JPY 45 per share. Now let me give you the details of the financial results. On Slide 2, you see the contents for today. I will first explain about the results for the third quarter, followed by full year forecast and then our view on enhancing corporate value. On Slide 3, I will begin with third quarter results. On Slide 4, you see the details of the financial results. Revenue was JPY 841.6 billion, up JPY 103.2 billion year-on-year. Business profit was JPY 34 billion, down JPY 7.8 billion year-on-year. Net profit was JPY 24.9 billion, including inventory assets and operating profit, which was on par with previous year figures. Adjusted EBITDA was JPY 63.7 billion, down JPY 6.4 billion from the previous year. Please turn to Slide 5. I mentioned that the business profit was JPY 34 billion. This slide shows the waterfall comparison to last year. On the right of the slide, there is a chart that shows the evolution of business profit by quarter in fiscal '25. First half was very difficult. First and second quarters posted only a small amount of growth. However, in the third quarter, business profit increased just as we assumed at the beginning of this year. I would like to use the left waterfall to explain what changed from the first half results briefing. You see that TAA was down JPY 900 million versus last year. However, in the first half, the figure was negative JPY 5.6 billion. This means that TAA has grown significantly. Difference related to sales was down JPY 700 million year-on-year in the first half, but it is now up JPY 1.1 billion year-on-year. We see slight improvement. With regards to cost and utilization ratio, it deteriorated slightly. What was negative JPY 4.7 billion is now negative JPY 5.1 billion. Third quarter business profit was JPY 17.1 billion, which was huge growth. On Slide 6, analysis made on the business profit in the third quarter of fiscal '24 as well as that of fiscal '25. The key is that TAA was positive JPY 4.7 billion. Especially to note was increase in the sales volume as well as positive impact from the use of recycled materials. Significant growth was made possible because of these factors. Next, there was a JPY 1.8 billion positive from differences related to sales. In addition to the mix and sales of the sales volume, the company is seeing the positive impact of price revisions, that led to a total of positive JPY 1.8 billion. Cost and utilization ratio was negative JPY 400 million. We are seeing improvement in the Flat Rolled Products business, but the Other businesses as well as group companies decline in profitability led to a negative effect here. Negative JPY 1 billion from Others was due to inflation in the labor cost compared to the previous year. Next is Slide 7, and here, I will explain about the sales volume by types of Flat Rolled Products for the cumulative 3 quarters. Cumulative amount as of the third quarter is 993,000 tons. Compared to the previous year, there was an increase by 48,000 tons. If you look at the differences year-on-year on the right, can stock has grown by 51,000 tons. That was followed by increase in IT and automotive materials, which were 3,000 tons and 1,000 tons, respectively. Thick plates are still lagging behind year-on-year by 5,000 tons. On Slide 8, you see consolidated statement of financial position. Total of our assets was JPY 1.093 trillion. This is a growth by JPY 123 billion year-on-year. This includes foreign exchange impact of JPY 40 billion. Aside from that, there was an impact from inventory assets. Aluminum ingot prices had gone up, which led to increase in operating capital by JPY 44 billion. Tangible fixed assets were JPY 25.3 billion. As of the end of the first half, it was JPY 12.2 billion. As you can see on the right, there were major capital investment at Fukui for expansion of UBC treating and processing equipment, expansion of thick plate quenching furnaces in Fukaya and expansion of scrapping processing line at TAA. Those are reasons behind increase in the tangible fixed assets to JPY 25.3 billion. Total liabilities and equity increased by JPY 41.4 billion due to increase in the borrowing due to increase in working capital. I will explain about the cash flow on Slide 9. This shows consolidated statement of cash flow. On the left, our results in profit before taxes, depreciation and amortization, change in payables and receivables, which led to operating cash flow of JPY 27.7 billion. Capital expenditures totaled JPY 44.5 billion, and free cash flow was negative JPY 16.8 billion. Financing schemes, dividends, decrease and increase in cash and deposits as well as conversion losses and gains on foreign currency-denominated borrowings results led to increase in interest-bearing debt by JPY 41.4 billion. On the far right, you see our status of financial strength. Interest-bearing debt increased by JPY 41.4 billion. Interest-bearing debt total is now JPY 382.1 billion. However, due to increase in capital, consolidated D/E ratio was less than 1x in the third quarter. Next is Slide 10. You see here the third quarter performance for each entity. First is Thailand or UATH. Here, the title says sales are growing, focus is on price revisions to improve profitability. On the upper right, you see the quarterly evolution from fiscal year '24 on sales volume and business profit. Sales volume is steadily increasing, but the business profit is still struggling severely. Due to appreciation in Thai Baht against the dollar, roll margin is shrinking. The company will work to secure appropriate level of roll margins, including an option of revision in pricing. Next is Slide 11, which shows results at TAA. TAA is seeing robust demand. It is maintaining high level of production, utilization and sales. As we have forecasted, we expect TAA to grow with a CAGR of 3%. No change is anticipated in the demand trends. With regards to production and sales, hot-rolling capacity was increased and investment in new shredder line became fully operational. This has contributed in reducing overall cost. TAA has strong relationship of trust with customers. The company expects to see high level of sales. The new shredder line became fully operational, and you see pictures of the line on the bottom right. By expanding the shredding capacity, use of recycled materials increased. Because of this, even with the impact of tariffs on prices in the United States, TAA is ready to achieve economy of scale, which would create further value. The company would focus on the business, including strategic procurement of recycled raw materials. On Slide 12, you see the situation of UWH in North America. There was a sudden change in the automotive market in North America. UWH was focused on securing profitability under such severe business environment. Bottom right bar chart shows the evolution of sales of BEV in North America. As you can see, there was a huge drop in the third quarter. At the end of September, tax break program based on IRA ended. There were last-minute demands until September, but starting from the third quarter, the situation became very difficult. The company would work to thoroughly manage the cost through improvement and reduction. That will be all for the explanation of the third quarter results. I will continue to explain our forecast for FY 2025, starting on Page 13. On Page 14, bottom right, we start with the business profit forecast. Based on the current sales situation, we have revised our full year business profit forecast upward to JPY 48 billion. In terms of the business environment, we expect the impact of the North American tariff policy to continue in Q4. In addition, there are some signs of a slight recovery in thick plates for semiconductor equipment. Also, we are seeing a slight decline in demand for extruded and processed products, et cetera. Other than that, the Flat Rolled Product business, with regard to exchange rate fluctuations, the impact of the baht-dollar continues to require close monitoring. As for measures to be taken from Q4 onward, we will continue price revision measures in response to rising costs and in order to alleviate the supply chain disruption, occurring in North America, the UACJ Group intends to respond by shipping from Japan and Thailand. With regard to the Aerospace and Defense Materials business, we will continue to work in the area of strengthening our activities. The left-hand side shows the progress by quarter. And for Q4, we expect a slight decrease from the JPY 17.1 billion in Q3. The business environment has not changed, but I would like to introduce a few transient processes that are manifesting themselves. We expect business profits to fall by about JPY 3 billion. And one of the factors of this is that the timing of property taxes has been adjusted to Q4 in accordance with IFRS accounting standards. Also, all groups conduct year-end and new year's repairs, and these repair costs will emerge in Q4. So there will be a slight decrease in profit related to manufacturing. In addition, each group company has been struggling a bit in business profits other than for the Flat Rolled Products business, and we expect to see some decline. And that the business profits for Q4 will not be as high as those of Q3. Next, Page 15 presents our full year forecast. First, revenue for FY 2025 is projected at JPY 1.14 trillion, representing an upward revision of JPY 40 billion from the November forecast. Business profit is expected to be JPY 48 billion, up JPY 2 billion from the November forecast. In addition, the impact from metal price lag, et cetera, is now estimated at JPY 18 billion, an improvement of JPY 9 billion. As a result, operating profit is projected at JPY 66 billion, up JPY 11 billion from the November forecast. Profit attributable to owners of the parent is expected to be JPY 27 billion, representing an upward revision of JPY 4 billion from the November forecast. In line with these revisions, as I will explain later, we have set the annual dividend at JPY 45 per share, an increase of JPY 3 from the November forecast. Next, on Page 16, we present an analysis of the projected business profit of JPY 48 billion compared to the November forecast. Starting from the previous forecast of JPY 46 billion in business profit, UATH is expected to have a negative impact of JPY 0.8 billion, reflecting a modest appreciation of the Thai baht. For TAA, we expect a positive impact of JPY 2 billion, driven by stronger-than-expected benefits from recycled raw materials as well as favorable effect from currency translation. Regarding the differences related to sales, while sales volume of Flat Rolled Products have been very strong and the effects of price revisions have materialized, sales outside the Flat Rolled Products business have been somewhat weak. Taking this negative factor into account, we estimate a net positive impact of JPY 1.3 billion in the differences related to sales. For the cost and utilization ratio variance, we project a positive impact of JPY 1 billion, reflecting slightly higher production volume than initially assumed, which is expected to improve cost and utilization. Other factors are expected to have a negative impact of JPY 1.4 billion, mainly due to inflationary pressures on indirect costs. As a result, business profit is now projected at JPY 48 billion, representing an upward revision of JPY 2 billion. Next, Page 17 shows the comparison with the previous fiscal year. The full year forecast stands at JPY 48 billion, representing an increase of JPY 2.1 billion from JPY 45.9 billion in the previous fiscal year. The breakdown is broadly in line with the factors discussed earlier. For UATH, we expect a negative impact of JPY 2.2 billion year-on-year, mainly due to foreign exchange effects and higher costs for recycled raw materials. For TAA, we project an increase of JPY 4.5 billion, driven by higher sales volumes and the benefits of recycled raw materials. As for UWH, we expect a very challenging environment from the fourth quarter onward and therefore, project a year-on-year decline of JPY 0.6 billion. Regarding the differences related to sales, the Flat Rolled Products business has recorded a significant positive impact, price revisions affecting all businesses have contributed positively. However, there has been some negative impact from lower sales in businesses other than Flat Rolled Products. Taking these factors together, differences related to sales is estimated at a positive JPY 3.6 billion. As for the cost and utilization differences, while we are facing considerable inflationary pressures, we are making every effort to implement cost reductions and expect to limit the negative impact to JPY 3.7 billion, which we anticipate will be offset by the positive differences related to sales. Energy-related factors are expected to contribute a positive JPY 1.8 billion, reflecting improved conditions in electricity, fuel and added metals compared with the previous year. The next Page 18 shows the sales volume plan by product category. The full year forecast for FY 2025 is 1,334,000 tons, a decrease of 13,000 tons from the November forecast. For can stock, we expect sales volumes to decline slightly by around 12,000 tons, while automotive materials and thick plates are expected to contribute modestly on the upside. This reflects the current outlook for the full year. Compared with the FY 2024 results, this represents an increase of 68,000 tons year-on-year, indicating significant growth. The increase is driven primarily by beverage can materials, which are expected to rise by 64,000 tons. Next, Page 19 outlines our shareholder return policy. We will increase the dividend by JPY 3 from the level announced in November, revising the annual dividend to JPY 45 per share. At JPY 45 per share for the full year, the dividend payout ratio will be approximately 30.2%. We will continue to target payout ratio of at least 30% of net profit and remain firmly committed to this policy. On Page 21, amid the recent strong share price performance, our price-to-book ratio has risen above 1x. However, we will continue to focus on reducing our cost of capital and improving ROE in order to generate positive equity spread. Page 22 presents a topic on strengthening our initiatives in the growth areas of Aerospace and Defense Materials. In the Aerospace and Defense field, we have decided on total capital investments of JPY 23 billion for this fiscal year. On the left, we announced on February 10, the installation of Japan's largest ring material manufacturing facility. We will invest approximately JPY 12 billion at the foundry and forging works in Oyama-shi with a particular focus on ring materials for space-related applications, including the H3 rocket. This project has been selected as a technology development theme by JAXA, and we intend to proceed steadily while utilizing support from the Space Strategy Fund. On the right is the thick plate quenching facility, which we announced on May 13 last year. This involves expanding quenching capacity for materials used in aerospace and defense as well as for semiconductor manufacturing equipment. At the Fukaya works, we will install one of the largest and most efficient facilities of its kind in Japan, and we are committed to ensuring that these two major investments translate firmly into earnings growth. Finally, on Page 23, we obtained an A- score for both climate change and water security in the CDP 2025 scores for the second consecutive year. In this area as well, we will continue working to enhance our corporate value on a sustainable basis. Page 24 shows the trends in business profit and EBITDA. We aim to increase EBITDA from the FY 2025 forecast of JPY 88 billion to JPY 100 billion and business profit from JPY 48 billion to JPY 60 billion by FY 2027. Toward these targets, we will focus on generating solid profit growth in FY 2026. Finally, Page 25 provides information on upcoming events. We plan to disclose the FY 2025 full year results at 2:00 p.m. on May 14, 2026, and the IR Day is scheduled for the morning of May 29.

That concludes Okada's presentation. That will be all for our presentation. We will take your questions now. Depending on the details of your question, if we see a possibility that it may impact our business activities, we may refrain from giving a response. [Operator Instructions]. I will now introduce the first person to ask a question. Mr. Yamaguchi from SMBC Nikko Securities. You have the floor. [Operator Instructions].

I'm looking at the movement of business profit in each unit on a quarterly basis. TAA in the previous quarter was over JPY 5 billion. But in the third quarter, the profit has risen to JPY 10 billion. Domestic business has seen an uplift as well from what was over JPY 2 billion to over JPY 6 billion. These 2 businesses have seen quarterly increase in the profit. I believe that there was metal benefit incurred in the United States. I would like to know whether the yield has been increasing or not? And I ask for your further explanation. With regards to the domestic business, due to Asahi Beer incident, the aluminum cans are not selling well. I took a look at the statistics released by the Japan Aluminum Association, and I saw that the numbers were severe. On the other hand, your company has seen increase in business profit this quarter. I would like to know what is going on? You said you're planning to aim at achieving JPY 60 billion in business profit. With the business profit you have seen in the third quarter and putting aside the seasonality factor in the fourth quarter, if we multiply the business profit by numbers by 4, it is JPY 68 billion. If we multiply the second half figures by 2, it is JPY 61 billion, which would exceed the midterm target. Do you still see the risk of not being able to achieve the target? Do you expect negative factors to materialize next year that would bring down the profit? Also, I assume that TAA did not include the metal benefit in the beginning of the year numbers. Because of that, at the onset, we see numbers which would negatively surprise us. With that also in mind, I would like to know whether the profitability level that we see in the second half is sustainable? Could you explain whether you expect to reach JPY 60 billion? Those are two questions that I have.

Thank you. We received two questions. In the first question, you pointed out that when quarterly financial results are considered, TAA and Domestic businesses are growing. You would like to know the contents of that growth, especially the domestic business. In addition, you brought up the statistics from Japan Aluminum Association for the Domestic business. You would like to know how the Flat Rolled business is doing. Your second question was that when you take a look at the second half business profit and multiply it by 4, it would reach a certain number. You would like to know how we expect the second half business would be, whether we see no risk or we still see risk? The first question will be answered by Mr. Hashimoto, and the second question will be answered by Mr. Okada.

This is Hashimoto. Let me respond to your question. Your first question pointed to the improvement in profit at TAA in the third quarter. The company explained in the first half that the main reason is the realization of the benefit of using recycled materials. We provided an explanation in the first half. There is a time lag for materializing the benefit. Now we are in the second half, and we are seeing concrete benefits to a certain extent where we can buy cheaper raw materials. That is the biggest factor. As we have explained in the briefing material, we have enhanced our recycling facility. Volume has enabled us to reap more benefit, and we are seeing the effect of the initiatives that we have taken. For the domestic business, you mentioned about the incident at Asahi Beer. Asahi had worked hard to ship beers nearly on plan. Because of this, their incident did not significantly impact us. To your point about our improvement in the domestic business profitability, first thing is that export volume for Europe is expanding relatively well. We see trend of further increase. In addition, there was an issue at a mill in the United States. To help cover the shortage, we exported can stock and automotive materials from Japan that contributed to the positive results. With regards to the thick plates, the second quarter was the bottom. From the third quarter, we are seeing gradual recovery. The fourth quarter is on the positive side. The low level numbers are now slightly improving in the fourth quarter, that led to overall improvement. That is all.

The second question relating to business profit in the second half will be answered by Mr. Okada.

Let me respond. I think your question is whether we will get to JPY 60 billion threshold in fiscal '26? As we have indicated on Slide 14, past records show that the business profit results are not always at its peak. We tend to be impacted by a variety of external factors. As you have rightly mentioned, we do get impacted by seasonality factors. However, if the tariff impacts continue into 2026, because TAA is operating at full capacity in terms of production, I believe it would give us a basis for having high expectations. As for UATH, the company expects it to continue to operate in full capacity. Because of that, if the ForEx rate between baht and the dollar goes toward baht depreciation, then we can expect more profit. As for Domestic business, as I have mentioned in my presentation earlier, situation varies by businesses. However, as Mr. Hashimoto mentioned, there is a sign of recovery in the semiconductor production equipment. Because of this, we have high expectations. That is all.

Thank you. That concludes our response to the two questions. I would like to comment on the first point about the impact from the incident at Asahi Beer. As Mr. Hashimoto mentioned, even though it is not that we were not at all impacted because Asahi Beer had shipped their main product as much as possible, the impact that we suffered was very small. To your second point about whether the second half profit level will continue for the full year next year, what would impact us the most is North American tariffs. We do not have visibility to what would happen next fiscal year on that point. We will continue to closely monitor the situation to figure out what kind of impact there would be on us. That's all.

It would be a significant event if tariff comes down to 25%, right?

Well, this is an area which is hard for us to predict what would happen tomorrow. We will continue to thoroughly monitor the situation. I would say because U.S. is not on friendly terms with Canada, I think you are on the safe side. My understanding is that there were a lot of discussions in the Congress yesterday, so we will continue to monitor the situation.

[Operator Instructions] I would like to go to the next question. Mr. Shirakawa from Morgan Stanley MUFG Securities. [Operator Instructions].

This is Shirakawa from Morgan Stanley. I would like to ask two questions. My first question is regarding Slide 16 of the presentation. Differences related to sales are indicated as positive JPY 1.3 billion. I believe this includes things like upward price revision you made, but I would like to know more. Also, I would like to know how your price increase has been received under the lackluster market environment? Asking from a different angle, what I'm interested in is whether you still have upside after next fiscal year on? Another point is the item Others, its negative JPY 1.4 billion, which is quite big. I would like to know the breakdown of that. This is my first question. My second question is related to Thailand. In the next fiscal year, I assume that there would still be certain volume that would go to the United States, and I hope that would happen. But what should we expect here? Because your contract period is based on years, I don't think you have been affected by tariffs so much this year. Do you expect any impact next fiscal year? Also, because you're concluding contract on a calendar year basis, I would assume you have your agreements already concluded, but I want to know what would happen to the price increase in various regions you operate, including the United States?

Thank you for your two questions. Your first question is regarding the analysis of business profit. You would like to know specifics of differences related to sales as well as about the price increase. The second question is related to outlook of business in Thailand for the next fiscal year. The first question regarding the difference related to sales would be answered by Mr. Okada. Mr. Hashimoto will respond to your question about price increase and outlook of Thailand for next fiscal year.

Let me elaborate on the JPY 1.3 billion in the differences related to sales. I explained earlier that improvement of mix of rolled products volume and price revisions would start to show. But because the demands in extruded products and metal components are slightly declining, the total would be JPY 1.3 billion. Roughly speaking, there is approximately JPY 2 billion increase from flat-rolled products. However, even though there are price increase efforts being conducted for extruded products, there is a bigger decline in sales volume. The impact from that is approximately JPY 700 million. To explain about the breakdown of negative JPY 1.4 billion in Others, it is the impact of inflation. The company assumes that it would be impacted by inflation going forward in overhead costs, and we expect it to be negative JPY 1.4 billion. That is all.

Next, Mr. Hashimoto will explain about the upward price revision in the domestic business as well as outlook for Thailand next fiscal year.

First, I would like to touch upon price increase in the domestic business. I have been repeatedly saying this, but the cost increase related to labor is very clear. This is not just about us, and it is a challenge society as a whole is facing. We are asking our customers for their understanding on this matter, and they are accepting it. We need to absorb the impact of this within the supply chain. For customers, this means that they would see increase in the cost. However, they do understand that it is necessary to absorb this within the supply chain. And because of their understanding of our need to pass on the cost, we have been able to revise the price this year. Let me turn to Thailand. I mentioned earlier about the products, which are exported to the United States. Currently, the U.S. market is facing impact of issues at certain mills, and we are increasing the volume to the U.S. based on requests we received. The situation is expected to continue for a while. The supply and demand in the U.S. continue to be tight, so we expect exports to be made from Thailand up to some point in the next fiscal year. That is the situation for the U.S. market. With regards to price increase, the ingot prices in Shanghai is significantly increasing, and there has been increase in our competitors' prices in Chinese products in Asia. Because of this, we have asked for increase in price, and we have been able to revise the price upward to a certain extent. That is all.

Is it okay to understand that you have already finished raising the prices for the domestic market?

Yes. We have been able to conclude all of the contracts for the second half, which we had expected at the time of the release. We believe inflation would continue. We need to carefully monitor the situation and work with the customers in gaining their support for appropriate pricing of our products.

We will now move to the next question. Mr. Matsumoto from Nomura Securities. [Operator Instructions].

This is Matsumoto from Nomura Securities. My first question is on Page 14. Regarding the fourth quarter, Mr. Okada mentioned earlier that profits would decline due to some one-off factors, and I understand that part. However, looking at the text in red and blue, there also seem to be some factors suggesting improvement in the fourth quarter. And based on Mr. Hashimoto's earlier comments, it appears that price increases are being implemented in places like Thailand. Also, the metal benefit in the U.S. does not seem to be deteriorating significantly, so how should we think about these factors? It seems that there are also some positive elements heading into the fourth quarter. So could you share your thinking? My second question is on regional margins. While margins in the U.S. appear to be solid; in Asia, we have heard that UBC and premiums are declining, putting pressure on margins. Could you explain your assumptions regarding market conditions, including scrap price increases and the decline in premiums? And my third question, I saw a news article suggesting that magnesium exports from China may have been suspended. Should we be concerned about this or is it not an issue?

Thank you for your question. Regarding your first question, it was rather difficult to hear, but I understand that you are asking about the progress and outlook from the fourth quarter through next year. Your second question concerns how margins in Asia are expected to develop? And your third question is about the recent situation regarding magnesium. Mr. Okada will address the first question. Mr. Hashimoto will respond to the second question on Asian margins and Mr. Kumamoto will take the third on magnesium.

This is Okada. As Mr. Matsumoto mentioned earlier, I believe the key points are positive and negative factors. First, as you are aware, we expect the current business environment to continue into the fourth quarter. Under these conditions, we believe we can secure earnings, particularly for TAA. As for the extrusion-related business, as we explained earlier, demand will decline, and this remains a key concern for us. We are, therefore, focusing on expanding sales of higher-margin extrusion products and are implementing measures to improve. We expect to see tangible results from these efforts heading into next year. As for foreign exchange, we believe volatility will likely continue. At UATH, we will, therefore, press ahead with measures to improve profitability, including price increases, as Mr. Hashimoto mentioned earlier, and we will work to strengthen our operations until the baht foreign exchange rate improves. Regarding the blue text for the fourth quarter, including the price revisions, Mr. Hashimoto has already explained, so I will not repeat. Also with regard to supply chain conditions in the United States, we are currently facing some disruptions in North America. We have received requests for support, particularly from our Japanese customers. So we intend to work to address the situation by coordinating deliveries from Japan and Thailand as needed. While it is unclear how far these supply chain issues will extend, we intend to respond carefully and appropriately to the situation.

We will now move to your second question regarding margins in Asia. Regarding margins in Asia, our main competitors are Chinese materials. However, following the value-added tax revisions 2 years ago, export products have also become subject to value-added tax. And as mentioned earlier, bullion prices in Shanghai have remained very high. As a result, competing products prices have risen significantly. Against this backdrop, we have been able to raise roll margins for Asia-bound at each contract revision once a year for annual contracts and every 2 or 3 years for longer-term contracts, leading to steady improvements. Regarding your earlier question about high costs due to increase in recycled raw material prices. It is true that premiums were very low in the third quarter, which narrowed the price gap between recycled materials and virgin aluminum. However, this situation has improved in the fourth quarter. In addition, the rise in recycled material prices have begun to stabilize. So overall, we believe the situation is now moving in a positive direction. Finally, Mr. Kumamoto will address the question regarding magnesium procurement.

I may not recall the exact details, but I believe that in 2021, there was also a situation where magnesium exports from China were disrupted, leading not only to sharp price increases, but also to actual shortages in supply. Since then, we have reviewed how we should approach procurement. We have secured non-China sources of magnesium. And as a user of additive metals, we have also increased our inventory levels of magnesium compared with the past. This may already have been reported, but industry bodies such as the Aluminum Association and there is also a Magnesium Association, they have brought together magnesium users to discuss possible countermeasures. These discussions include benchmarking among companies, joint inventory strategies and potential steps to be taken for the future. While I cannot go into too much detail, we are taking various measures to mitigate the impact as much as possible. As for magnesium, at this point, we are not facing any immediate or direct issues. We are maintaining an adequate level of inventory. And while we will continue to monitor developments carefully, there is no cause for concern at this stage. That's it.

The next question comes from Mr. Goroh of UBS Securities. [Operator Instructions].

This is Goroh from UBS Securities. I have three questions as well. First, you mentioned that the medium-term management plan target of JPY 60 billion in business profit is now in sight. Looking at the business environment and earnings over the past year, it seems that the response has been somewhat reactive, focusing on countermeasures against cost increases and weak volume demand. There is also an impression that margin improvements in various areas have been somewhat delayed. During the previous structural reforms, the company appeared to take proactive measures against rising costs. While the contribution from metal benefits have been significant this time, I hope to see the company fully execute the original scenario envisioned in the medium-term plan and begin harvesting those results from next year. For example, in Thailand, while there has been much discussion about margins, there should also be opportunities to drive volume growth through productivity improvements. In North America, while the hot rolling operations starting this year, you should also be able to address volume expansion. In addition, for areas such as thick plate as well as the recently highlighted aerospace, defense and aviation sector, can we expect to see the results of the investments made so far begin to materialize in terms of volume in FY 2026? There is also a concern that once operations begin, depreciation and fixed costs may hit first, which could result in not meeting the expectation. So for my question, could you share your thinking on this point? Specifically, can we expect meaningful volume growth and proper harvest of the initiatives in the midterm plan? My second question relates to the value of recycling in the medium-term plan. So far, the discussion seems to have focused mainly on the cost advantages of using recycled materials. However, I believe the real objective should be value enhancement. It seems that the investment cycle has largely been completed, and you are now entering the phase of harvesting. My second question, therefore, is whether there is still room within the medium-term plan period for additional initiatives that create value through the use of recycled raw materials beyond the cost benefit? My third question is to confirm the numerical assumptions. While metal benefits have been moving significantly, you have previously explained that we should not focus solely on spot. In the latest earnings revision, what level of improvement in metal benefits have you factored in? I assume you have not fully reflected the current levels, and you have also mentioned time lags in the past. You also noted that tariff developments could pose a risk for next year and if the current levels were fully factored in, that could become a risk. So could you share, to the extent possible, the level or assumptions you are using? Those are my three questions.

Thank you very much. We received three questions. First, you asked about the outlook and the approach toward achieving the FY 2027 medium-term plan target of JPY 60 billion in business profit. Second, how we view the value of recycling within the medium-term plan and how we intend to expand it. Third, how we have factored in the benefits from recycled materials? I will address the first and second questions, and Mr. Okada will respond to the third. Regarding the first point, progress toward JPY 60 billion target under the medium-term plan has been uneven. As we explained earlier, varying by country, region and application. Fundamentally, we will continue to focus on improving overall productivity and implementing price revisions as we have been doing. At the same time, we will steadily enhance productivity at each of our sites. In addition, in growth areas such as aerospace and defense, we have only recently begun various initiatives. So some of the benefits are expected to emerge in the latter half of the current medium-term plan period. Accordingly, we intend to grow these areas and achieve the JPY 60 billion target under the medium-term plan as early as possible. Turning to the second point, how we view the value of recycling within the medium-term plan? We have been making steady progress in expanding our capacity to use recycled raw materials. On the other hand, from the perspective of customer adoption, the benefits and value of recycling have gradually been recognized by our customers. Some customers have come to understand this value, and we have been able to reflect it in our pricing. We will continue to communicate these benefits clearly and aim to further enhance the value of recycled raw materials. Now regarding your third question on how the effects of recycled raw materials have been factored in, I would like to ask Mr. Okada to comment.

It is rather difficult to answer to this question. But compared with the previous year, the first half was challenging this year, and the effects emerged rapidly in the second half. I understand your question as asking what exactly has improved year-on-year since it is not really visible? Inflation is rising in the U.S. And at present, we present TAA's profit and loss using a single bar in the waterfall chart. So it may be difficult to see from the outside, and we would like to improve our disclosure in this area going forward. For FY 2025, we expect a year-on-year increase in profit of JPY 4.5 billion, and the main driver is the greater contribution from the recycled raw materials compared with last year. From our perspective, however, at TAA, we are expanding the shredder lines, which will significantly increase the use of recycled raw materials going forward. We, therefore, expect profit to grow even further beyond the current fiscal year.

As we are approaching the scheduled end time, we will take the next question as the final one. Mr. Ozaki from Daiwa Securities.

This is Ozaki from Daiwa Securities. Referring to the quarterly trend table on Page 31, TAA's business profit increased from JPY 5.3 billion in the second quarter to JPY 10 billion in the third quarter. Was this mainly due to metal benefits? I would like to confirm this point. Also, if we exclude UATH, TAA and UWH from the total, the Domestic business appeared to have improved significantly from the second to the third quarter. Is this mainly the result of price increases? And can we assume that this improvement is sustainable going forward?

It is Page 32, the numbers on Page 31. The numbers, Mr. Okada will address and Mr. Hashimoto will comment on the changes in the domestic business from the second to third quarter.

Regarding the approximately JPY 5 billion increase in TAA's business profit from the second to the third quarter, as you suggested, this was mainly due to the effects of metal benefits. That's all.

As for the domestic business, as I briefly mentioned earlier, the main factor is volume. They include shipments of can stocks to Europe, automotive-related support as well as IT and data center related. In addition, thick plate shipments began to increase gradually from the third quarter. Currently, our domestic operations are running at almost full capacity, and that is one key factor. In addition, many customers implemented price revisions starting in the second half, and those effects are now being reflected.

For TAA, the fourth quarter would be about JPY 9.2 billion based on your figures. Metal benefits also appear to be rising again gradually. So is there any particular reason why the fourth quarter would be weaker?

We are not assuming any major deterioration. Our plan reflects not only the impact of recycled materials, but also factors such as sales volumes and product mix. So it is not based solely on the effects of recycled materials.

Thank you for your question. As we have reached the scheduled end time, this concludes today's briefing. For any further inquiries, please contact the IR department. This concludes UACJ Corporation's FY 2025 Third Quarter Earnings Presentation. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]