UACJ Corporation ($5741)

[Interpreted] We are on time, so we will begin the briefing. Thank you very much for taking the time after your busy schedule to participate in UACJ Corporation's IR Day today. I am Motoyasu Sudo, General Manager of IR and PR Department, corporate Communications division. I will be moderating today's session. This briefing will be using the materials posted on our website. If you do not have the materials on hand, please check the shared screen on Zoom or visit our website. Now I'd like to make a few points to note regarding the briefing. Some of the presentations today will be in English. Simultaneous interpretation will be available during the briefing, including the Q&A. If you'd like to hear the simultaneous interpretation audio, please select the Japanese channel from the Globe icon in the tours at the bottom of the screen or English, you'll be able to hear the audio of both the speaker and the interpreter. If you select mute original audio, you will only hear the interpreters audio. This briefing session will be recorded for a record-keeping purpose. The content of the briefing will be published on our website at a later date. So please refrain from recording or filming this session. Furthermore, while this briefing may include information that includes future projections. Please note that this information is merely our current forecast. Actual results may differ significantly from those projections due to various factors. And finally, please make sure your microphone is on mute. Let us begin today's program. First, our Representative Director and President, Shinji Tanaka will give an opening address, followed by a presentation titled looking ahead to the latter half of the fourth midterm management plan. Mr. Tanaka, the floor is yours.

[Interpreted] Good morning. Thank you very much for taking time out of your business scheduled to join UACJ Group IR Day today. This is the very first IR activities organized in this new building. And venue is a smaller and Henry is joining today, and he might be workaround a bit in this room, but please accept this size of the room. Now we are deeply grateful to investors and analysts for your continued support of the UACJ group's IR activities. The sincere appreciation, and we will continue to actively engage in IR programs, and we to your continued support. Let me now announce today's program. Today's IR Day, I will first present the progress of the full midterm management plan and Hashimoto will then discuss the domestic for products business and UTH in Thailand and Henry will explain TAa in the United States and Okada will cover our financial strategy. First, I, Tanaka will present the progress of the first -- excuse me, the fourth mid-term management plan. This slide shows our current philosophy, which we refined and announced in February of 2020. Our purpose is to contribute to city by using raw materials to manufacture products that enable prosperity and sustainability, which means the characteristics of the materials and the cultural and sustainable society will be realized through our activities, and this is to show our determination at UACJ Group to continue to help support the prosperity and the society and people's lives. And these philosophies are serving as a foundation of UACJ Group. I now would like to summarize the first half of the fourth mid-term management bank. Looking back on the first half of the plan, we had faced by inflation that exceeded our initial assumptions and also geopolitical risks around the world. On the left, on the side, we show the priority policies of the fourth midterm management plan. On the right-hand side, we show key financial targets, the final year target of the plan actual results of FY '25 and the outlook of FY '26. Overall, as you see on the left, well, although the progress varied by individual initiatives, but we generally advanced in line with the plan and some areas achieved results that exceeded the plan. And this is the result of the study implementing our measures over the first 2 years, taking near-term uncertainty in our account and we have kept the final target of the plan unchanged. However, in the second half, we will further strengthen our earnings capability. Now this chart is towards the final year of the midterm plan, this is the progress of the financial targets and results. This is the target of the midterm plan. As you see in FY '26 for revenue, business profit of JPY 60 billion and adjusted EBITDA of JPY 100 billion, where we are going to increase the earnings quite extensively. And JPY 60 billion in our business profit is basing upon the uncertainties that we can project at this moment, and that's why we set out JPY 60 billion. But we believe that business profit is a real-term capability, and we'd like to generate this. Regardless of the external impact, and we'd like to implement the continued and steady airports to be able to generate profit for sure and adjusted EBITDA of JPY 100 billion. And during the first half of midterm plan, we have completed 3 important seeds spreading initiatives. The first is to prepare a ground work for a circular aluminum economy. In all 3 regions: Japan, [indiscernible], United States, we successfully brought the all these efforts like the facility investment and the preparation for the further capacity. And the second 1 is to secure growth drivers for the period beyond fixed-term plan. We decided on the significant investment into the aerospace and defense area. And for TA, we've made further production expansion, and that will be covered by Henry in the later presentation. The third is strengthening our operational foundation, including the interaction of the latest digital technologies such as generative AI. And all of these initiatives form a strong foundation for the second half of the plan for 2030 and for the years beyond. And this slide shows the waterfall analysis of the business profit from FY '23 through FY '26 outlook. Now as shown here, business profit is expected to increase from JPY 43.4 billion to in FY '23 to JPY 65 billion in FY '26. The largest contributors to this growth are raw material effects and recycling volume effect. And the raw material effect includes unfavorable metal market conditions as well as the benefit derived from a diversified sourcing and procurement and the recycling volume effects include the increased scrap consumption resulting from higher recycling rates as well as contributions from new products such as the equal and other value-added offerings. In addition, we have responded to the recent inflationary pressures through appropriate pricing actions and price adjustment. There are some time lag, and therefore, there are some negative impact lagging continuing at this moment. Through these initiatives, we are strengthening our earnings base, and this is the concept for UACJ Vision 2030. As we move towards FY '27, we will continue to implement a range of measures to respond proactively to changes in the business environment. Beginning in FY '26, we will enter a phase in which the production expansion facilities and recycling facilities that we have invested thus far will begin a full-scale operation. In addition, we will continue to invest aggressively in new growth areas, including aerospace and defense and supported by these initiatives, we expect to generate a stable and sustainable earnings growth. With respect to shareholder returns, we remain firmly committed to our dividend policy of a payout ratio of at least 30% through our midterm management plan, and we intend to continue to provide stable and consistent returns that meet the expectations of our investors and shareholders. This slide shows the investment amount that will give our strategy for the second half of the plan. we revised our initial investment plan in order to respond properly to the changing economic environment. As you see on this slide, the JPY 160 billion was the initial plan, but the latest plan is JPY 165 billion, which is a minor increase. As you see in this slide, general investments such as safety measures and renewal of aging plant facilities have increased by JPY 18 billion due to inflation. At the same time, from the national and local governments, we secured strategic subsidies and other support so that we are optimizing overall investment efficiency and for environmental investments and DX investments, which will be the source of future competitiveness, we will maintain and execute the initial plan of JPY 5 billion each. This slide shows the location reallocation of the JPY 85 billion improved investment, market changes surround us is changing beyond our assumptions. For instance, as you are fully aware in North America, the momentum to the proto and automakers development policies have also shifted as well. In response, we decided to reduce investment for automotive parts from the initial JPY 15 billion, quite significant to JPY 4 billion, much smaller and allocated the investment to the packaging and containers and allocate JPY 24 billion to aerospace and defense as well as semiconductor manufacturing equipment, which will become our next major growth pillar. This slide provides an overview of our specific initiatives in the Aerospace and Defense Materials business. Our key challenge in this business is that our current heat treatment capacity and large-scale forging capacities are sufficient to fully meet the expected increase in demand. So to address this bottleneck we are making new investment at the Fukaya Works as well as casting forging works to expand the capacity to eliminate these constraints. Furthermore, as announced in our recent press release, we have entered into a strategic partnership with a global leader in aerospace and defense industry. Through this partnership, we aim to expand technical collaboration. And this slide illustrates the vision for future business growth. As we transform from a material supplier into a provider of material materials plus added value. We will engage with customers from the earliest stage of product development and provide value-added solutions through our technical expertise, environmental value and other unique strengths. By combining our predominant market position and stable earnings in core businesses with strong growth in high value-added sectors, we aim to achieve sustainable enhancement of corporate value. To support our accelerating businesses, we need agility on the front lines and a robust corporate foundation to support it. And as such, we have reorganized the structure in '26. And first, we established a business process, the ex promotion division. After building a robust IT foundation, we will embed the company-wide use of generative AI. We also established the Corporate Communications division. We will deepen dialogue with in and outside stakeholders in a more strategic manner and strength in communication that accurately contains our appeal and true capabilities. We are also making clear progress in management transparency and governance that supports our business. For the official structure after the ordinary General Meeting of Shareholders, we have submitted a proposal approximately 6 independent outside directors. Excuse me, we have submitted a proposal to appoint 6 independent outside directors out of a total of 11 board members, raising the outside director ratio to 54.5%, which exceeds a majority. If approved, the ratio of outside members of the nomination and Remuneration Advisory Committee will be 75% and the ratio of female officers will rise to 31.3%. By incorporating into management the rigorous perspective of diverse professionals with a wide range of skills. We will achieve the fourth midterm management plan. At present uncertainties remains high due to factors such as inflation and geopolitical risks. At the same time, rising environmental awareness, the growing need for more resilient supply chains and increasing demand for true management solutions all represent significant business opportunities where UACJ can privilege is technology and expertise. We hope that our shareholders and investors will recognize and appreciate the progress that we are making in strengthening our earnings power. This concludes my presentation. But next, Mr. Hashimoto, will discuss our strategy for strengthening our earnings to drive future business growth. Thank you very much for your kind attention.

[Interpreted] Mr. Tanaka, thank you. Next, Mr. Hashimoto will discuss our strategy for strengthening earnings. Keizo Hashimoto will be discussing the topic.

[Interpreted] Hello. This is Hashimoto. I will talk about the strategies to bolster earnings capacity for our business growth. First is demand. So let me talk about the expanding growth -- global demand forecast for aluminum rolled products. In the 5 years from 2025, we expect 3.5% growth a year and further 4% growth towards 2030. And these are our locations or flat rolled products. We have 3 in Japan and Thailand and the U.S., and you can also see the products at the bottom of the slide. In Japan, we have broad products in Thailand, can stock. And in the U.S., we have the can and construction materials. -- and the sales volume on the left side, 1.2 million in FY '23, 1.32 million in FY '25, 1.4 million in FY '27 and 1.5 million in FY 2030. So we will prepare our structure to meet the demand increase. Next is the growth potential. So core is the Japan business. As you see on the right side, we will increase production capacity for key products and then enhance portfolio and production compatibility and adjust prices to grow our profitability. In the overseas business, in the U.S., Henry will talk about the U.S. business later, but also including Thailand, these are the growth businesses. We will increase production capacity and also diversified products, end markets, regions, customers and adjust prices. In addition to these regional strategies, to enhance added value, we will provide value-added materials and enter new domains, enable greater recycling capacity to enhance our recycling rates and reduce product carbon footprints and expand sales of eco-friendly products. So we will enhance the regional capacity and enhanced also the volume and quality. So that is how we plan to grow our business. time line on the horizontal axis and business profit in the vertical axis. So we will add value to each region. Next, this is the vision and where we stand. First, the triangle on the right side, demand will continue growing. So our base, customer base, production technologies, mono quality, aluminum properties, UACJ way, trust history and diversity will be enhanced. And in the middle, we will demonstrate our strength, which is broad product and region coverage and ability to create synergies among businesses. The comprehensive strength, including casting and forging, and you can see the environmental impact. So we will use our R&D and production capacity to broaden the mountain and make it higher. So that is what we want to achieve. On the left side, you can see where we stand. We have high share in Japan and abroad. Adjusted EBITDA, JPY 88.3 billion in FY '25, we aim to achieve JPY 100 billion, JPY 100 billion in FY '27. We want to step this up. We are #2 in the world and want to become #1 and grow our business to achieve that goal. So this is the image. Now this is the progress in fourth midterm management plan are 3 key points. So first shift from quantity to quality. Second, shift from goods to services; and three, evolution of the 3 country supply system. As President Tanaka said, the demand environment is changing dramatically. So we need to be flexible to meet the changes. So first of all, the battery demand growth is slowing down. So we are trying to grow sales in other areas. In Europe, the can stock and in are growing. So last year, we established a new company and sky, thick-plate quenching is installed. And in shift from goods to services, the recycling capability will be enhanced and established the regional closed loop recycling and Almitas and Smart sales and evolution of 3 country support system, we will enhance the compatibility of SCJ and KH. And we think we are making progress, as you can see in the circle. Next, this is the capital investment in Japan. I mentioned Fukui and Oyama -- sorry, Tanaka-san talked about the thick-plate quenching equipment introduction and the ring mill, the casting forging. In Fukui, the recycling system is being introduced, and this is already up and running from January this year. Right side, Oyama Works advanced casting system deployment. This is in operation from May this year. And the thick plate quenching equipment will be second half of next year and ring mill will be FY '29. So in Japan, in many areas, we are continuing to enhance. This slide shows the sales volume and business profit in flat rolled products. The blue is Japan and TAA Thailand. 1.2 million in FY '23. We are growing year after year. This year is 1.36 million in this year and 1.4 million next year is the plan. Business profit in Japan, TAA and Thailand, due to FX, the profit is smaller in Thailand now, but we will improve this going forward. I will elaborate on this later. Next, enhancing profitability of domestic flat rolled products. In Japan, the sales volume is growing against FY '23, FY '26 is 110%. FY '27 is planned at 115%. Growing areas are listed here, we can for Europe and PC mobile terminal, thick plate, memory disk and aerospace and defense. I will go by 1 later. As you see on the right side, in each product. The environment response needs is existing. The double circle are where we already have mass production. And the single circle is where we are developing and making progress. In each area, recycling needs is heightening. Now 4 growing areas listed here. First, the plate quench plate, AI related semiconductor production equipment demand is growing. Against FY '23, FY '26 is 160% in PC Mobile, the new models are now being adopted. So in FY '26, we expect it to double vis-a-vis FY '23 and the battery foil, battery cases, EV, the storage battery, ESS demand is growing. EV demand, battery demand is slowing down, but this ESS is growing. So this battery foil, battery cases is expected to grow by around 10% and exported can stock. In Europe, energy price is rising. So the shift from glass to aluminum is shifting, PET to aluminum is already progressing, and the supply is not keeping up. And so global customers are now requesting us and so we are working on that in Japan. So we expect FY '26 to be 4 to 5x bigger than FY '23. Next, improvement of Thailand profitability. The can stock is growing globally and the number is up from 260 to 360 thousand. In Europe, not from Japan, but from Thailand, we are starting to ship. So we are now improving our portfolio to increase our shipment to Europe and expanding the procurement routes. To improve the portfolio and take these measures to improve the UATH profitability. Now creating environmental value through value-added materials. As you see on the left side, we will work on smaller environmental footprint by making capital investment in recycling cans and new alloy and also the procurement of the green version aluminum. And right side, we will expand sales of eco-friendly products and tangible forms of environmental value and appeal the value. We will work on those 2 aspects to increase the value-added materials. Almitas. As you see here, is now up to 30 in FY '26 compared to FY '23, we want to grow this further. And this is my last slide. From FY '22 to '24, automobile can and construction material development were conducted, and we see a number of cases increasing in FY '25, thick plate and functional high-performance products and air conditioning and extrusion. Going forward, we have not press released yet, but automobile or PC, mobile terminal and cosmetics, infrastructure we are working on them. So as I mentioned earlier, we will first increase our capacity to capture the growing demand and not just volume, we will also work on reducing environmental footprint and expand our added value. So working on those 2 is our basic fact. Thank you. That concludes my presentation. Thank you.

[Interpreted] Mr. Hashimoto, thank you very much for your presentation. Next is under the title of strengthening of our competitive position, CEO of Tri-Arrows Aluminum, Henry Gordinier is going to make presentation. He's going to make a presentation in English. And if you wash the simultaneous translation, if you click the growth mark the bottom of 2 of the screen and choose a Japanese, so that you would hear presenters as well as translated to audio. If you mute the original voice translations voice-only is going to be heard. So let's start the presentation. Henry.

Good morning. It's great to be here today. IR Day is always 1 of the days I look forward to with my UACJ colleagues, and it's nice to really start to see familiar faces now year-over-year. But it's a good day to tell our story at Trier, and we've got, I think, a really good story to tell. Today, we're going to talk about -- we've seen this strengthening our competitive position because that's exactly what we're doing. We're strengthening our competitive position. So with the first slide -- do I have to do the slide? So Tri-Arrows, we're located in Louisville, Kentucky. Our manufacturing plant is in Southern Kentucky, so in the Midwest of the United States, poised to know about Tri-Arrows and Logan Aluminum is it's the low-cost producer in the industry. It's the most productive hot mill in the world. And something to know about Tri-Arrows is, we are 1 of the largest recyclers in all of North America. We service the can sheet industry. We've got about a 20% market share of the U.S. market. And we're a preferred supplier in that space. We sell to every brand and to every can maker that's buying sheet. And that is something that I don't think any of our competitors can say. So really well positioned on a great asset base. So positioning ourselves for long-term success, and that's really what I want to talk to you guys about today. And we're going to really focus in on 4 different things. One, I want to talk a bit about that low-cost position part around productivity and how productivity itself has been driving down our unit cost, but it's also enabling us to procure the most economically advantaged material inputs. And that's the system that we're designing and building. So with that, there's a conversation that have to be had around scalability. It's been a focus for our business for over the last 10 years, which is designing an infrastructure and designing a business that can scale to do more, more at our footprint here more outside of our footprint, but it's really around not just capacity, it's around capability. And the reason we're focused on that is right for all businesses, we go through cycles. We go through strong cycles. With tailwinds, you've got cycles, with headwinds you've got the uncertainties. The question is, have you built the right asset base and the right company culture that you win in all market conditions. And that's what we've been focused on doing and putting in place. So we'll talk some about what that means to us. But the net sum of all this is durable performance. It's about the results that we're able to post to our stakeholders. And the investments we've made in the past have certainly showed up and now it's about kind of continuing to build upon that and constantly increase. You'll hear me talking about what our earnings floor looks like. So how do we continue to increase the floor and then create more room for the potential, and that's what we've been doing. And then lastly, okay, so what's next, right? What's the future for us? And where do we see the next set of opportunities. Next slide. So here's the can sheet market. And I apologize if I'm standing right in front of it, I'll walk through the side. Beverage container sales will start there, and that's in billions of units. But we've seen continued growth right now, a CAGR of around 3% on beverage containers in the U.S. So kind of an exciting, which is driving sheet sales, right? And 1 of the exciting things about -- from a product launch perspective, and this was almost the opposite 10 years ago. But there's now 75% of all new product launches today in the United States are being launched for beverages in an aluminum package over PET. It did not use to be the case. We were the minority a decade ago, but now it's 75%. And what gives me confidence in a number like that is when you -- when it's not attributable to 1 factor, it's attributable to multiple factors. I mean there's functional aspects to why it makes sense relative to just product protections that are in place or the ability to stack and manage a supply chain. But then on top of it, it's the ability for brands to create better branding space. And then you can lean into what consumers are actually preferring from a convenience perspective as well as the recyclability to it. So there's like -- it's a multidimensional kind of a tailwind we've got going from different aspects. It's why we've got confidence that this growth rate is going to continue. So when you think about billions of units growing at that rate, the sheet supply is moving and that same. We see demand moving in that same space. So it's a great space to be in. So now investments that deliver. I'm going to focus a bit now and talk about the fourth midterm plan. We just finished FY '25. We're 2 years in. We're at the halfway point. So it's about what we expect to accomplish what we have accomplished this first half and then what we expect for the next 2 years in it. So let's move on to the next slide. First, FY '25, I have to stop in brag. It's been a magnificent year for us. When we look at FY '25, we broke records this year. We broke records in total revenue. We broke records in conversion revenue. We broke records in EBITDA and earnings that we produced. We broke records in coil production. We broke records in coil production, coil sales, and then we broke records and scrap consumed. That is 1 awesome year, but delivering $287 million in earnings. So really, really proud of it. But I think what that's kind of part of the story around how you kind of continue to leverage the investments you've made and grown. What's really nice is we've had 3 very large projects underway in the fourth midterm plan. They only partially showed up in FY '25. So if we set aside market dynamics a bit, we'll get -- I'm sure we'll have questions around scrap prices and markets, et cetera. But when you just think fundamentally, what we're expanding. We've got 2 years left to show some performance on that. So if you go to the next slide, I'll walk you through what we've been doing. So hot mill expansion $145 million commissioned in Q3 of last year, essentially upgrading motors on our finishing mills as well as other infrastructure in the plant that will create to create some efficiency, allowing a lot more capacity through the mill scaling the business. On the material side, shared line improvements. So we added a new shred line into our fully integrated cash center, this red line has a different technology than the other 2 that are with it, which is allowing us 2 different angles. One is improved utilization overall just because you can run more units through it, more uptime. But the second thing is the type of units. So while we're processing UBC, we can also now process a larger range of material types. And it gives us the ability to make sure that when we're sourcing, we're running the math to say, what's the most economically advantaged way to get through the chemistry. It's what we're solving for, how do you get to the chemistry that you need with as cheaply as possible, right? So we can use off-grade scraps, we can use in blend and we can move in the markets and be agile in that way. So that's what the shred line has been about. And that came online in Q4 of FY '25. And now when we look at over here, on the far left, we also started up a partnership this quarter in FY '26. And this is a partnership that's third-party processing. So it's different. It's rotary furnaces. It's meant to process a byproduct in our materials segment of the -- of our business called DROS and, but the rotary furnaces are actually going to give us capability to do more than have a shorter supply chain, a local supply chain for draws processing, reduces freight expense certainly by being colocated. But we can also process other scrap types through the rotary furnaces and we also have the ability to deliver multi aluminum to increase throughput and casting directly into our 3 other CAs centers. So what we've built here is a system to widen our capability, increase our rolling widen the capability of what we're melting and then further add on to that a wider range of scrap types that we can be blending and use and then delivered in multiple forms, whether it's in multiple -- or whether it's in molten or RSI. So what does that mean? We talked about having a our business being a business that is 1 that's cost advantaged. It's industry-leading and how productivity leads with it. Well, mean this is how the math kind of flows for you from FY '23 or the actual numbers we had and when we look at the end of this midterm plan with the investments that we've got, remember, we didn't have these even scaled in '24 and '25. They're now scaling for 26 and 27. But we're seeing a 17% increase in what our production looks like. And you're just spreading your overhead with those things. You're spreading all those fixed costs across more pounds. So your unit cost is actually going down at Logan by 6%. So for anyone in the room that gets concerned about inflation, that's how you beat inflation. Our unit costs are going down. They're not going up. We're widening margins and the widening that margin protects you in every market condition. I'll come back to that theme again and again, designing a system where you're advantaged regardless of the market conditions. It's exactly what's happening in this space by driving our unit costs lower. Next slide. So that was just the rolling side, what's happening on the metal side with the 2 investments we made. On the metal side, scrap consumption between FY '23 are actuals and where we're going to end in FY '27, it's up 46% and which is a staggering number when you think about the metal value that we're able to pull into our business. I think this scrap is a true value add. We're taking scrap metal that has no purpose melting it and pulling it back into a form as a value add into a usable product, but a 46% increase. A real fun fact is if you look back to FY '16, we've increased scrap use by which is just phenomenal when you look at our earnings performance to layer on top an 8x growth for the amount of scrap were using. So -- but also casting production, it's given us 18% more ingot, and we need the ingot because we're growing the hot line. and we need to have the capacity to continue to move. And so the whole system is set up with eyes looking forward down the field. But what you're seeing here is we've got increased shredding capacity. We've got increased shredding capability for different units. That's giving us operational flexibility. And that's really, really important, so we can pivot to where the value is. And ultimately, we've got some more localized material flow that's going to improve operational efficiency. That is what we've been doing, and we have not yet realized a single full year of value from these investments. So let's take a look at what that should look like with the next slide. This is MTP 4. So our expectation now is we will have fully scaled the investment you just saw for the next 2 years for FY '26 and FY '27. And then we've got some exceptional market conditions as well with FY '26 and FY '27. So when we think about that position of strength, my expectations are we'll have an exceptional year in FY '26. I said FY '25, we set records. FY '26, we're going to beat records. We're going to beat every 1 of those records that I stated. And when we look to the future in FY '27, we still have that robust system in place to capture the market. So looking further forward. That's a pretty good playbook, right? It worked. We're seeing it drive down unit cost, you're seeing it drive earnings. Let's do it again. And that's the conversations we've been having with UACJ and our owners, and they backed us now for another $130 million investment to once again go with our hotline to improve coil performance. As we just talked about, we have ample material supply coming into it and ingot capacity. So we're drawing more metal value into it. But it's the same playbook. We're able to put 10% of growth with this project, which with some continuous improvement, we expect 12% when we look to FY '30, and that's driving down unit costs, again, another 3%. And costs are still going to a more advantaged space. With that, our market share is preserved. A really, really important thing is to say how do we continue to grow maintain our market share in a growing market. And this is 1 of the reasons why all our customers want to retain us. And in fact, with so many of the reliability issues in North America, our customers now prefer us more and more so. The best compliment I am given by the CEOs of our customers is the fact that we show up, we do exactly what we say we're going to do. That's why they come back to us. And that's why they'll continue to come back to us, and that's why they want us to grow in this space. But as we contain our market share, then we're drawing more value all the way through the system from a materials perspective. And again, it's just shifting that earnings floor up. So translate that forward looking beyond MTP 4. This is kind of the world that we look at. We're going to see a step change of production that's going to begin in FY '29. And so we will once again increase coil capacity in that space on a stronger cost profile with a system that is designed to absorb a wider range of scrap types and give us more flexibility. So what we really see right here is we've expanded our earnings potential. We expanded it going into MTP 4. You're now seeing it in '26 and '27 with the end of MTP 4, where we're going to set some new records. And then we've built the stage to go further when we get out to FY '29 MTP -- past MTP 4. So in conclusion, I mean, it's really pretty simple story for us. I like that. It's easier for me. We have a healthy market. We have a growing market. And so it's a market that we can really lean into. We've got an advantaged position within that market. We've made the right investments. We did them at the right time. We weren't waiting for conditions to show up. We invested before those conditions showed up. I've got a son who's an athlete and the way we talk about it is the great athletes are in front of the play. You got -- if you're ice skating, you got to skate to the open space. And that's what we've been trying to do is make sure that we have the assets in place to take advantage of the conditions when they show up. So we have the capabilities now. We've got the infrastructure now to further grow. So those assets are yielding great results. We're seeing it prove out in our financials, and it gives us a chance with the cash that we're making with the balance sheet strength that we've got with the reduction in debt and the financial strength that we're in to go again and go further. And right now, we're extremely bullish about what the future looks like. And again, I appreciate your time today. Thank you.

Thank you, Henry. Next, Kozo Okada, Director, Executive Officer and Chief Executive, Finance and Accounting Division, will give a presentation titled Financial Strategy supporting future business strategy in the latter half of fourth MTP.

[Interpreted] I am Okada, Director of Finance and Accounting Division. I will speak in Japanese. So we just heard about the business growth from the earlier speakers. We will need to support that financially to ensure that we can grow continuously. So such resilient, robust financial structure needs to be built under my responsibility. So let me explain the financial strategy for achieving our future business goals. First, fourth MTP. The business profit and adjusted EBITDA on the left side are expected to achieve 1 year ahead of schedule. The business profit and adjusted EBITDA will be achieved. Regarding ROE and ROIC ROE. Last year, and FY '24 and '25, we had the positive from the metal price lag. We achieved high numbers and we still have more to do for FY '26. Business profit is growing for us to achieve 9% ROIC. But ROE because of the absence of the metal price lag and due to the situation in the Middle East, ROE 9% may not be met. We may fall slightly short of 9%. But for both ROE and ROIC, we will aim for 9%. The ratio, which is a measure of financial discipline management has been at 1 time from FY '23 and FY '26 will also maintain onetime. And in the final year of our MTP FY 2027, we will exceed 1 time. Now this left one. This diagram shows the cash allocation initially envisioned for the plan. Operating cash flow, JPY 220 billion and JPY 160 billion investment and the reduction in the debt and dividend. Right side is the current position. The 4-year cash allocation, operating cash flow, JPY 210 billion plus alpha. And this impact is because of the increase in the working capital. I will talk about this later. Operating cash flow is being dragged because of this factor. So we will continue working on cash generation going forward. unfortunately, JPY 8 billion in financing, we cannot reduce the interest-bearing debt just yet. So we will focus on measures to generate cash, and I will elaborate on this later. Next, is the continuous enhancement of the corporate value, financial measures to enhance our corporate value. TBR, onetime and above. ROE needs to exceed the cost of capital. Internally, ROIC analysis using DuPont method, the profitability and capital efficiency. We will manage week for these points. And for the financial soundness, we will manage DE ratio. So by enhancing these 2, we plan to enhance ROE and that is our key in the activity. On the right side, the measures we are focusing on. First, the reduction in the working capital to improve ROIC and further management of capital investment. We will be doing investment further. So as we manage the capital expenditure amount, the criteria, the profitability will be watched closely. So that we will invest in the way that will ensure growth for us going forward. And the management of the financial position. We will issue corporate bond. So we will also focus on diversifying our financing. Next is the reduction of the working capital to improve ROIC. From April 2024, we started fourth MTP from April 24. We got price sored and yen has been weak. So the working capital has increased radically. As you see on the right low right, in the past 3 years, increase of the working capital had been JPY 220 billion JPY 120 billion. CCC cash conversion cycle improvement project started in FY '25. To reduce working capital, we are reducing the inventory and also improving the cash conversion cycle. Next is on the capital investment. I will skip the details as President Tanaka already explained them, but we will make sure we have good investment to generate cash to ensure growth going forward and stabilize our corporate activity. DE ratio. To strengthen our financial structure management, we are working on DE ratio. Right side is what I already mentioned. We are making progress in improving the ratio. Right side, net debt EBITDA will be tracked to look at the cash generation and the interest-bearing debt ratio to be 3x by FY '27. We will reduce the working capital but enhance the adjusted EBITDA to solidify our financial position. Now this is our shareholder return policy. President Tanaka already mentioned this. Our basic policy is stable and continuous dividend. In our fourth MTP period, we aim to achieve target of 30% or more of net profit to return to the investors and shareholders. Lastly, enhancement of capital efficiency. So to enhance the capital value, corporate value, we need to improve ROE and reduce the cost of capital to enhance the equity spread. Right now, risk-free rate is rising. As you see on the lower right, our beta value has improved quite significantly. We will watch data value and actively engage in dialogue with markets and focus on strengthening information disclosure as we move forward. That concludes my explanation. Thank you very much.

[Interpreted] Mr. Okada. Thank you very much. We now would like to take a 10-minute break. Q&A session, we'll start at quarter to 11:00, 10.45. Thank you. [Break]

[Interpreted] We will now start the Q&A session and take questions from everyone. Joji Kumamoto, Director, Senior Managing Executive Officer and Chief Executive Corporate Strategy Division; and [indiscernible], Executive Officer and Chief Executive, Corporate Communication division, will also join. Simultaneous interpretation will be available for the Q&A session as well.

[Operator Instructions] We will take the questions first from the room. SMBC Nikko, Yamaguchi-san please.

[Interpreted] Thank you very much for your presentation. May I speak in Japanese? And those of you who are joining the web, I strongly recommend to visit this company. It is a great view form the window. Now my question -- there are 2 questions. First question is the market condition is quite good, and as TAA is generating fantastic earnings. So financial results is superb. But what about organic area, where -- in regards to the outcome that the company has generated out of your organic efforts. And I think at the midpoint of the MTP by recycled materials and facility is now being installed, but the scrap is too expensive. The margin isn't performing and so forth. So what is your take on your efforts that is made through your organic efforts that far, what is the stage? For example, in parent [indiscernible], the U.S. foreign exchange rate is unfavorable, therefore, not being able to generate profits. And it is a complete opposite situation of TIA. And what is your take on your achievements that you are able to achieve so far? And the second question, TAA, production capacity enhancement that was referred in the presentation. I recommend to the investors that it is okay. But the steel dynamics has been made. And when I hear everything used to be well scrapped is doing good. However, scrap is currently low value. However, it is -- the price is going to go up. So many of my investors are worried about the situation. So demand supply situation because the -- you asked for the further questions. So I would like to clarify on the your take on the scrap values prices going forward. And what are the debottleneck? And are there economic benefits that you can derive at? If you could answer to this question.

[Interpreted] Thank you very much for your question. 2 questions. First, the market is in favorable situation at this moment. But what is the progress of pure company's organic effort so far. And the second question regarding North American situation. Henry will refer to later. At the beginning, regardless of the market, what is our own initiative that has been made thus far. Could I plant the slide? Page 8, the lower rate of my presentation today, do you have handouts. So if screen out is not ready. So out of this slide, I'd like to further explain. First of all, in regard to our organic efforts. This waterfall is produced at it is item by item. And therefore, whether it is organic or not is really hard to see. But what are the points is for left, there are strong positive recycling. This is that the recycling ratio is going to be increased so that scrap usage is going to increase. This is 14.4. And the investment is progressing in a steady manner. And it is a midpoint of medium-term plan. And in fact, the impact was larger than what we initially expected. In regard to the market prices, towards the right, the cost impact as well as the falling exchange rate impact, the metal practices included as well as the diversification of the sources -- procurement sources. Thus the Forex impact is also included. And it is not segregated completely. However, there is a tailwind or wind, and we are able to generate the great positive. The scrap facility investment has been made. And inclusive that the recycling volume impact as well as the sourcing impact is now being reflected in this way. Now out of this quarter fall, so materials processing is because of the automotive area and the market is plateaued at this moment. So we need to carefully wait and see the market situation. But there will be some time shift, but at some point in the future, there will be a BEV to take off. So we are carefully monitoring, but we need to be fully prepared so that if, once again, the momentum rises and we'd like to do the fast field aerospace and the semiconductor that I have referred to in my presentation, we are taking measures 1 after another in a steady manner. Time line is like FY '27 or perhaps it will be moving into the next midterm plan. And therefore, only 2.4% at this moment, but we are poised to grow this area. So on the whole, we hit the midpoint of our midterm plan. So we are able to observe the progress more so than expected. But of course, there will be many changes in the market or debt risk as well. There are so many changes that we need to expect to have. So we will be really careful.

[Interpreted] Any other executives to add?

[Interpreted] Kumamoto speaking. So material class processing we initially thought that automotive components area shall be grown more so that we can earn more profit. That was the original plan yet as is explained many times, automotive market is, well, particularly EV market and EV production in the United States. And of course, partly affected by the tariff issues as well and the market growth is rather struggling or plated and North American market, be it a Japanese market as well. OEMs in this market are trying to revisit the time line of investment or adjusting investment amount that so far declared the termination of this program. Therefore, we are adjusted our waterfall time line or the sequence of investment. And we have adjusted the priorities in investment as well. But of course, BEV or ACE cards. I think that lighter car will be a greater benefit for automakers as well. So we are waiting for strong headwinds to move away, and we are ready for sunshine to rise once again. Thank you very much.

[Interpreted] And I'd like to move on to the next point in regard to the business in North American market.

[Interpreted] So you'd like to ask market situation as well as the market conditions inclusive of the competitors. Henry, could you give us an update?

Sure. I believe, and correct me if I'm wrong -- sorry simultaneously, I believe your question was really around scrap and the healthiness that we're seeing today. in the scrap markets and kind of an outlook on that? Is that correct?

[indiscernible]

Yes, me too.

You said [indiscernible].

Well, yes, I mean the way I look at it is this way. We built the system. We are in an exceptional period right now. There's no way about it. I mean 2 years ago, you'd look at scrap spreads that were around 75%. It fell to about 70%. In the first part of this year, we've been buying at 45%, right? So you're seeing historically favorable markets in that sense. So the way I think about it though is, number one, we didn't build a system that is going to be dependent upon the current conditions. So we just we're able to build a system that's in place to capture these tailwinds that we've got. As long as the U.S. consumer continues to recycle even in our poultry 45% rates nationally, with the growth, we're still going to have access to those cans. I think the current spreads are going to remain favorable for this year, right. And that's independent of what may happen with changes in tariffs, et cetera. There's a lot of structural reasons right now where I think it's going to be a while before I see any significant change or tightening in scrap spreads. So very confident that those are going to kind of endure. And then the great thing about what we've been trying to do is in terms of kind of the scalability point, it's the fact that by raising the -- your overall throughput, number one, is even if you're making lower value on a unit basis, you're processing more units, so you're creating more earnings, number one. And number two, great defensive strategy in our ability to just diversify out and not be solely dependent upon a limited amount of scrap types, but getting much wider in terms of that. And we built for that matter, a pretty incredible, I think, supply chain on the front end where the networks from where we're procuring are from international to domestic sources. So I'm overall, very, very confident. I'm also fully recognizing the fact that we're in a historically strong market. I think that's going to stick with us for just a little bit. And then I think we've built the system to make sure we're going to optimize however these wherever spreads ultimately kind of settle in. Does that help?

Yes.

[Interpreted] So these 2 questions. Would that be answered quite sufficiently? We will take the next question. Nomura Securities, Matsumoto san, please.

[Interpreted] Nomura Securities, Matsumoto. First is on UATH. So in the briefing, you said that it will improve. You always see it will improve going forward, but it doesn't improve as quickly as we hope. This year, or maybe the next 3 years, could you share with us the volume and the price margin and cost. If you break them down into these factors, what do you think will improve going forward? My second question is on -- to Henry. So the capacity building this time, why did you choose to take this format? If the demand is strong, then there may be other ways to increase the capacity by 20%, for example. There were there any other options? Why did you choose this type of investment in the capacity improvement, capacity increase. So if you have any thoughts on that, please.

[Interpreted] Thank you for the question. So 2 questions. First is on volume or margin forecast. And the other is the question to Henry. The method you used for the capacity building. First, UAH will be answered by Hashimoto-san and then Henry.

[Interpreted] So please turn to Page 11, the slide I use for my presentation. So volume, as you see on the lower left is growing year after year and demand can stock is growing globally. There is customer needs, and we are growing steadily. So that's the first point. In almost all areas, we are supplying and U.S. will continue for some time, and Europe is also starting price. As I always explain, our relationship with customers is strengthening and price is improving as a result of that. The biggest competitor is Chinese manufacturers. In the domestic demand, Chinese players are also facing cost increase, competitors are facing cost increase. And so we are improving year after year. But the profit is not growing as much as we want. As I mentioned earlier, FX boxes stronger than we thought. Maybe the same for Japan, in the past, Thailand is strong in export. So their currency tends to appreciate. And therefore, volume and price are rising raising the profit, but profit is lower because of FX. So how we see this is, first of all, on FX. We do not think about, we'll appreciate more and bot is now weakening gradually. So in this trend, we will grow our volume and price is improving as we speak. So these positive impacts will be reflected in our numbers going forward. In addition, as I alluded to earlier, our business for Europe thanks to the strong needs by customers is increasing. We cannot deal with everything from Japan. So we are starting from Thailand this year. And U.S. and Europe are better price-wise compared to Southeast Asia and Asia. So this will also improve. And as I mentioned in other parts of the slide, we are trying to do higher added value products in Thailand. One is the white and the general and foil and general products. We are trying to increase the product types to improve further. So that is our direction in Thailand. I hope this answers your question. About the sales portfolio improvement Europe was mainly sent from Japan, but there are inquiries from nontariff countries. So we think we will start seeing that in the second half of the year. We have high expectations. And we cannot control it. But last year, Bots appreciation was extraordinary, but now it's settling down. So from this fiscal year onward, we want to enjoy the positives going forward.

[Interpreted] Next, Henry, could you update us on the U.S. situation?

Sure. Absolutely. I would like to clarify 1 part of your question. You were asking kind of why we chose this approach from a capacity perspective. Was that a question that was talking about 1 step further inorganic versus organic? Was that what you meant by approach?

Yes. Probably, you have several kinds of options for [indiscernible].

Well -- no, that's okay. The simplest I can give you is cost efficiency, capital efficiency. So it's a pretty staggering number. If you think about it in context of, let's say, the new rolling mills that are being announced, right, all in. And those numbers are anywhere between $3 to $5 a ton when you think about the output pounds that have been put out there. And from a capital efficiency perspective, we're like cents on the dollar for these. So literally, because we have the downstream capacities already there and we've got the upstream capacity that's been built. The debottlenecking, it's -- the rates of return are just kind of silly and we're able to fund these things on operating cash. And so it's kind of yet, how can you not do something that it's $0.30, $0.40 to the dollar for the new output pound? So the first 1 was -- the answer is probably just it's the no-brainer approach.

[Interpreted] For example, if you increase the investment amount and increase the capacity by 20%, is that not economically effective? Or was that difficult -- physically difficult? Or -- what about those points?

Say it again, so which -- if we -- why we didn't go further, is that what you're saying?

Yes, that's right. That's right. You have any idea for example, 20% capacity increase is economically effective or reasonable?

There are definitely breakpoints. So when we were looking at the projects, you're looking at great points from capital efficiency. In this particular project, there was just a really clean breakpoint technically with what we're going to be doing that would allow us to create this capacity for the least amount of capital possible. There is or are other opportunities to increase further that are less capital efficient that we've looked at. But we knew this was the right 1 to go through today and for those reasons, it was kind of the no-brainer. And we still have options to go into Phase 2, if you will, that would deliver strong value as well. So just haven't pursued that yet. And I'd say relative to the North America market, it's something I talk about frequently with our colleagues with our balance sheet where it is today, we're also just monitoring the competitive position because there's other ways to expand as well inorganically.

[Interpreted] And 1 more point, Henry, so the competitors are now starting. And what is the market environment right now?

With that, I mean, yes, there are 2 new rolling mills 1 ADI's facility that is -- has coiled into the market and then another 1 that is our joint venture partner, their mill at Bay Monett and it is still in process in terms of building and coming along. But the important point to know is our market is structurally short right now. We have historically high imports right now to support demand. And if you talk to any of our customers right now, the issue is around getting metal. It's around getting coil to get product to market. So structurally short now, these new assets are going to take some time to commission and to ramp, right? And we know that. We've seen it. So we're going to -- I think it's going to be some time before they really leg into, I would say, the full run rates, but the market continues to grow. So we really do have confidence that things are going to be balanced out and that there's going to be some time for these ramps. And so what we saw customers initially do from a contracting perspective, customers were initially. At first a little bit standoffish in terms of cutting new longer-term deals. They were kind of wait and see what these new announcements meant relative to what leverage they might have in a supply negotiation. But then recently, they've really come to the table in '25 to say, hey, look, we recognize now that what we kind of already believe, which is the ramp times are long. And these are complicated industrial complexes that are being turned on. And the customer, what they really need is reliability, dependability. They need the coil now for product that they're trying to put on the shelf, which put us in an advantaged position. It's another reason why these investments we're doing makes sense because they are less complicated, right? And you're able to release that capacity and we're able to time the investments with sales agreements on the other side of them.

[Interpreted] Thank you very much. Next is SBI, Goroh-san.

[Interpreted] UBS, Goroh speaking. Two questions. First question, so the waterfall analysis, JPY 15 billion of Middle East and inflation JPY 2.5 billion. So cost impact is going to be reflected and that inflation risk is going to be incorporated in the midterm and in fact, because of that impact, there were negative impact expected. And IQF raised the prices and cost inflation precedes the price increase. So there was some negative impact. And the time lag of automatic recalculation of the sales price, and that is a time lag all the time and the time lag management is going to be really important. So when you expand the production rather than to increase the fixed costs and yet volume increases, so therefore, unit costs will be reduced by the marginal profit is going to be reduced, and that is a struggle that we have. So price increase efforts, in order to shorten the lead time or price increase, are you able to do so? What concerns me is the United States market. There's a once a year price increase is probably the common prevalent practices. But in the shortages of products, are there any trend to change this particular practices. For example, cost increase is going to be immediately reflected on the pricing. Are there any wait to reflect that. So if you could explain the margin, first of all. And the second point is in regards to the scrap ratio increase. At the very stage, it is a rise from the low point the differences or the delta was really significant. But you're reaching nearly 80% of use of a scrap or all of the sites, how much margin to grow that you're going to improve scrap material -- diversified materials is going to be used for the scrap going forward. Would that be lesser energy area in the cost and the value app is something that we'd like to expect, but the recycling rate improvement versus the earnings increase or value up. Are there any good relationship that you have enjoyed so far?

[Interpreted] Two questions. So as inflation progresses and the timing of price increase, what about the time lag are you able to secure sufficient margin? That's the first point. And the second scrap rate increase. So far, we were able to see benefits and what about going forward? So for the first point, Hashimoto-san will explain that. For the second point, I will be explaining.

[Interpreted] Now time lag versus the cost increase versus the price increase. Cost increase comes from 2 points, first labor costs, and the second is energy. For domestic market, for example, for energy, we apply surcharges, therefore 3-month or 6-month delay cannot be avoided. However, in a certain time interval, we are able to increase the price. For the labor costs so far until 3 years ago, it wasn't a price increase of every year. But starting 2 years ago or last year, labor cost is rising like 4% to 5% per annum. And therefore, we have no way but to increase the prices. So therefore, customer is accepting. And therefore, even for the labor cost increase, it is annual negotiation. So wage increase has been carefully monitored and taking an evidence of the wage increase, and we are negotiated with the customer. So every year, we are raising prices with our customer. Now in regard to the Middle East issue, Friday last week, like we have announced and we started negotiation already, application will start in July. Customers fully understand our situation. So with a sort of degree of speediness, they are accepting cost increase is actually happening from April. But probably, fulgently, the our procurement department says that the cost increase will be applied for forged in July. And therefore, we are able to pass on the cost to the customers sufficiently, which we are going to do from now. So as you are aware, we are trying to manage the time lag as much as possible. But of course, there's no way to do so, and we are able to do so far. In regard to the United States, could you comment on that, Henry? For U.S. portion of the same points. Inflation and cost price increase.

Yes, I was -- Yes, so in the United States, the way we operate mostly under long-term contracts. So I think the shortest contract we have in place is 3 years, and we've several at 5 and then a couple that span out to 8 years. So we've got a range of them. They all have price adjustments in them, really that are triggered around inflation. So when we think about like producer price index, for example. So there's methodologies we have that would help us against just kind of core inflation from a pass-through perspective. And then so that ultimately, between that and the productivity gains, which you saw help us drive our actual cost down lower, that helps kind of protect where our margins are from that perspective. We don't go back and renegotiate conversion prices mid-cycle. So they happen with the term of the agreement.

I mentioned -- what I missed was you have that once a year -- I mean product price adjustment opportunity you have, but I'm just wondering the condition is getting in the supply shortage position, if there is a chance to make it shorter, the timing wise, it is better for to get the leasable month going forward. Once the area is kind of too risky for that.

In the event of a shock -- like in the event of a price hike. So we talk about the Middle East, for example, we have had no direct impacts at all from an operational supplies perspective. And so -- but the question, I think, might be read as if we had supply shocks that would come in, how would we address those. And we would address those, and we have in the past historically, approaching with surcharges under -- when you're in unique times. We just haven't been in a space where that's effectively kicked in. So -- and we do have a pass-through model relative to freight as well. So we're insulated on the freight component of it as well.

[Interpreted] So price increase started recently and the JPY 15 billion of negative impact needs to be recovered and activities to start JPY 15 billion is kicking in and the company is trying to reduce this cost increase?

[Interpreted] Yes. we are taking such actions and efforts. In regard to the second question, the scrap rate further increased. Well, so far, as is planned, we have increased the recycling rate, as you said, we started out with a low point. And going forward, the focusing on more of UBC to be -- which means that we will be able to use easy-to-process scripts. And going forward, like U.S. is doing diversification of the types of used materials. So we will be able to formulate and combine the different kinds of used materials and which means that the recycled materials need to be diversified more. And on top of that, we are requesting customers more -- for example, when we mingle the different type of recycled materials, the formulation will be complicated. And can we suggest something? Or can customers use ingenuity to make it simple and alloys could be combined to some extent, and we would like to do so. So gaining understanding from the customers and try to target at 80% at this moment.

[Interpreted] Next question, please. Next question is from Morgan Stanley, MUFG Securities. Shirakawa-san.

[Interpreted] This Morgan Stanley Securities, Shirakawa. I have 2 questions. First, the U.S. Thank you for updating us on the situation. In the short term and medium term, I want to know your forecast. So Section 232 tariffs, 50% tariff is opposed U.S. is a net importing country. So in the Midwest premium is pushed up in the short term. But is this structure sustainable or not? What is your view on that? So that's my first question. Second question. Regarding ROIC. So working capital, JPY 120 billion compared to FY '24, it's up by JPY 120 billion. And so I was on a declining trend. This year, you expect this to improve significantly. You mentioned CCC, you said you will work on improving CCC. So what will change? Why will work be so good this year? If you could elaborate?

[Interpreted] Thank you for the question. So 2 questions. First is on U.S. So short term and medium term, including Section 232, what will be the trend going forward? Section 232 trend, I think it's difficult for anyone to answer but Henry, if you could enlighten us. And second, working capital. Okada-san said earlier, so we will elaborate on that later. So Henry, could you please?

Sure. No, I appreciate the question. It's certainly 1 that we talk about a lot inside our business as well. has served for 2 years as Chairman of the U.S. Aluminum Association, so had a fair amount of time in Washington, D.C., helping policy talk policy on exactly these things. I do think -- I think a couple of things. But first, Yes, the structure can endure. The reality is, I believe we've shown that we can operate in the environment of high tariffs. Now Will, it's a different question, right? And I think and with whom and with rich partners, right? So I think you're going to see tariffs now become part of trade policy with the U.S. that sticks for a while even. And at this point in time, I'm just telling you what I feel, administration to administration. But I also believe you've got things like the USMCA agreement that by statute, will start negotiations in July. And I don't think that's going to be trilaterally negotiated. It's probably more bilaterally negotiated between U.S. and Mexico and Canada. I would say that 1 of the largest concerns is if you begin having preferential rates with 1 country versus another country, you create all sorts of opportunities for market distortions and trade flows that don't quite make a lot of sense. So a lot of the work being done right now, I know from association from my counterparts and competitors. We're trying to make sure what we don't create is a world of unintended consequences that makes it harder on our industry to compete. But I think there's great opportunity on the other side of USMCA to strength in North America and maintain what's really important for us, which is truly, it's about having our borders protected, and not just our borders, Canada's and Mexico's borders protected against unfairly subsidized metal coming out of China and Russia. So we're focused pretty intensely on that. I do think the tariffs can exist. I think the levels will be adjusted, and it's really a function of how those bilateral trade agreements come about and when they happen. I certainly believe that at this point in time, it's -- there's a lot on the government's plate. So I think that we are going to see these extended negotiations with the USMCA take place over a longer term. So I'm not looking for anything over the summer or in the fall, I think. Is that helpful?

Yes.

[Interpreted] Thank you. So the second point on the working capital increase and the financial KPIs. Okada-san?

[Interpreted] Thank you. I will answer the question. The working capital increase is leading to deteriorating cash. So first, our way of thinking on ROIC, first numerator, so JPY 65 billion business profit this year. So JPY 65 billion profit, the numerator will turn around. And the working capital is worsening. We will try to accelerate collection. That is the key measure, including finance scheme. We are trying to generate cash. to reduce the working capital, of course, including inventory. And we will work on this in the overall price. But right now, our businesses are including this in our budget to conduct the measures. It used to be volume-based, but now it is price-based budget, and it's visualized and the business units report on a monthly basis and discuss on what we do next. So this is centering on the President President's order, and we have shifted to that direction. So we will do this further. We've been doing this from FY '25, but now we are on track. So we think Rick will continue improving. Well, Middle East situation is aggravating and probably you're adjusting the procurement origins. And while you're doing so reducing the inventory that will be beneficial for CCC, but what do you think about the risks? Perhaps my explanation wasn't sufficient rather than to reduce, it will be optimal be managed. So that's the benchmark. We will not sacrifice any production. It is an optimum. The inventory is going to go up and down. And when we have excess stock and we are going to adjust at the appropriate level. So that's the approach to the inventory.

[Interpreted] The next question, Shibata-san of SBI Securities.

Thank you very much for your opportunity for the presentation. One question. On Page 12 of Hashimoto-san's presentation, now the reducing the man burden and as such, the environmental value of a smaller footprint is pursued. In this box, there are many points raised in environmental actions. So I was able to imagine what you're doing. But towards the right, trying environmental into economic value. It is really hard to quantify from outside. And it is really reflected into our forecast. So I would like to hear more about the right-hand side of the slide, where -- which are the particular item that we should be paying attention to? Hashimoto. As you pointed out, it is a bit complicated. Of course, environment deal need to be scale in some way measured in some way and be able to quantify. And society at large, there are many trials that is made One way is to bring that to [indiscernible] value is the current tax for CO2. So current pricing is the one, for example, if the use of renewable energy electricity and then what is a value. So these are the available quantified value. At power companies, if renewable energy use and a CO2 reduction and this and that, and therefore, the per ton value is as such. And in Europe, per ton, value is like EUR 100 and so forth. So such a calculation is happening. So by reducing CO2 and copper footprints as well as carbon price, all these can be changed into the value and we refer to these numbers and try to calculate economic value. So if we are to make a role and 15 per ton. However, green energy will be 2/3 and if you scrap and further decrease is expected. So basis, but how much decline can we make reduction can we make, particularly when we think about the Scope 3 of CO2 reduction, that will create a very significant value. And as we reduce the CO2 and we will enjoy that economic value. And we have already started several years ago, and the customer understand this. Per ton value, of course, subject to discussion, but we will apply certain value so that we earn some premium and therefore, on the left, as you see investment development and we are allocating such premium to the investment. If you're not if this is not sustainable, we can't reflect that investment. But such a benchmark is available. We are starting out this initiative.

[Interpreted] Let me add some information. The customers' needs is diversified quite extensively based upon the customer, if price is rising, and then recycling rate doesn't have to be very, very high. But some of the customers want high recycling rate with high premium B2C mostly. And how much and the breakdown of the customers is not subject to disclosure at this point, but there are many customers who are willing to pay premium with the use of recycling. So when CO2 reduction will be monetized in the future. And we will be instead fast. It will not be a onetime blog. But we will be step-by-step and try to make the customers fully understood about the value. That's what we would like to do. We will take the next question.

[Interpreted] We do not see any other questions. So -- just a moment, please. Next question is from Daiwa Securities, Ozaki-san from Zoom, please.

[Interpreted] Ozaki from Daiwa Securities. Just 1 question. U.S. TAA. So you utilize scrap, capital investment and recovery collection system is in place. using strap. I understand that very well. So compared to your U.S. competitors, what is your biggest differentiating point if you could show us. So TAA scrap business model. How easy is it for the competitors to copy your model? So that's why I'm asking this question.

[Interpreted] So the U.S., the comparison -- peer comparison. Where do we have the competitive advantage? So Henry, please?

Well, I think you've got the competitive advantage. We've got, I would say, a very large head start, if you -- just in terms of our assets that are in place today. And there's no question that I think that that's there. If you had to ask me about competitive advantage, I would probably stretch that a bit further to how we work with our suppliers, the network of suppliers that we get. It's really into how we conduct our business. We've got the right infrastructure. We've got the right capabilities. We've scaled that out. Now the question is how do we operate in that market? How do we think and how do we transact. We have a, for lack of a better term, our approach to the market is very sophisticated, savvy, I would say we're almost -- think of our procurement arm is not buying pencils, but trading so that we're very intentional about when we entered the market about how much we're entering the market for when we exit the market, trying to do as best we can to capture value, but offering us little predictability as we can which creates more opportunity for us. And that's something I think that is fairly unique relative to how our competitors are set up. That's 1 level. And the other part is the suppliers and the partners that we've got. We've got a broad range of suppliers that extend all the way from pure traders that we've got long-term relationships with to folks that actually have assets themselves, physical yards to folks that are importers. So and structuring each of those deals somewhat differently or the kinds of deals differently and it gives you these levers. It gives you these levers that I think are very, very difficult to recreate. And a lot of them are pretty relationship-based. So if you go take a look at the folks that we partner with these are decades old relationships. So the level of trust and how we interact almost on handshake agreements is something that I think is different and differentiates us in a way. So when opportunity shows itself, we typically see it first. when markets move in a way that where we don't want to chase it, we run our model and our system in a space where our production is not at risk. So we know when to use inventory. We know window lever up. We know when to draw it down. And so to me, the question you had about competitive advantage is really 1 around culture, and it's about how it is you approach working with your partners and the partners that you select. And then you got to complement that with having the right asset base. What I'm really proud of when you looked at the presentation earlier today was the fact that the assets that we put in place, they were here before the market showed up. And so it's about making sure that you're not reacting to something that's happened. It's about making sure you've got the operational abilities in place to take advantage of the markets and the market conditions. So I think we've executed on both of those fairly well. Hopefully, that helps answer your question.

[Interpreted] Yes, I understand well.

[Interpreted] Thank you very much for your question. Are there any further questions? Thank you very much. Now if there is no further question, I'd like to close the Q&A session. Now for the further contact, please contact the IR and Communications department. With this, we'd like to conclude the IR Day of UACJ Group. We hope that to all of the stakeholders, including investors, would you are at cost efforts. And I hope that you could kindly help support our operations going forward as well. Through today's IR Day, if you could give us more feedback be appreciated. If you could log on to the URL or the chat boxes or if you scan the QR be appreciated. Once again, thank you all very much for joining despite your business schedule. This concludes the session. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]