Hiroshi Hosotani: The shareholders' equity ratio fell by 2.9 percentage points from the end of the previous fiscal year to 51.8%. The net D/E ratio was 0.3. Free cash flow for Q1 of fiscal 2026 was an outflow of JPY 1.6 billion. For the full year of fiscal 2026, free cash flow is projected to be an inflow of JPY 260 billion. This concludes my presentation.
[Company Representative] (Komatsu): Next, Hishinuma, General Manager of Business Coordination Department will explain the FY2026 business results projection.
Kiyoshi Hishinuma: This is Hishinuma. I will explain the projection for fiscal 2026 business results and the status of major markets. Page 14 outlines the projection for FY2026. We have made upward revisions to the 28 April sales and profit projection, reflecting revised assumptions of the Middle East situation and US tariffs and the latest market outlook. The drop in demand in some regions resulting from the Middle East situation is expected to be less than anticipated, and US tariff rates were partially revised, thereby reducing the impact.
Kiyoshi Hishinuma: Sales will increase by 4.1% year-on-year to JPY 4.302 trillion, revised upward by JPY 184 billion from the April projection. Operating income will decrease by 2.2% to JPY 555 billion year-on-year, revised upward by JPY 47 billion from the April projection. Net income will decrease by 7.3% year-on-year to JPY 349 billion, revised upward by JPY 31 billion from the April projection. Demand projection has been partially revised. This will be explained later. Exchange rate from the Q2 will be JPY 150 to the US dollar, JPY 174 to the euro, and JPY 106 to the Australian dollar, unchanged from the April projection.
Kiyoshi Hishinuma: Full year average rates are JPY 152.1 to the US dollar, JPY 176.6 to the euro, and JPY 107.6 to the Australian dollar. FY2026 ROE is expected to be 10.1%. Cash dividend per share JPY 190, unchanged from the April projection. Consolidated payout ratio is projected to be 48.6%. Page 15 summarizes the Middle East situation and US tariffs impact incorporated into the fiscal 2026 projection, along with the underlying assumptions. First, the impact of the situation in the Middle East. At this time, regarding the impact of the Strait of Hormuz blockade, we are using alternative shipping routes.
Kiyoshi Hishinuma: Although some delays observed in local projects, delivery is expected to continue, and the impact on sales is projected to be less than initially anticipated. Additionally, the impact of declining demand in certain African countries and Southeast Asia due to soaring crude oil prices remains limited at this time. On the cost front, there have been no significant changes from initial assumptions regarding the rising procurement costs of petroleum-based materials.
Kiyoshi Hishinuma: However, due to factors not factored in the previous forecast, such as increased shipping costs from Japan and additional expenses associated with changes in shipping routes, the impact on cost increase is expected to exceed initial projections. We revised our Middle East-related sales decline projection to JPY 46.3 billion and a cost increase of +JPY 23.2 billion. Next, regarding the impact of US tariffs. We have revised the tariff rate on steel and aluminum from 25% to 15%. We have also factored in the impact of additional Section 301 tariffs that took effect in July.
Kiyoshi Hishinuma: As a result, we have revised the impact of cost increase due to US tariffs to +JPY 25.8 billion. Please note that these projections are estimates based on the current situation, as the impact amounts may fluctuate significantly depending on future developments. We will continue to closely monitor the situation. Page 16 represents the segment sales and profit projection. Construction, Mining & Utility Equipment is projected to increase by 4.3% year-on-year to JPY 3.97 trillion. Segment profit is expected to decrease by 2.1% to JPY 481 billion.
Kiyoshi Hishinuma: Retail Finance sales is projected to increase by 1.9% year-on-year to JPY 128.5 billion. Segment profit will decrease by 0.2% to JPY 36.5 billion. Industrial Machinery & Others sales will increase by 5.5% year-on-year to JPY 252 billion. Segment profit is expected to increase by 9.4% to JPY 41.5 billion. I will explain the factors contributing to the changes in each segment later. Page 17 shows projections for sales by region for the Construction, Mining & Utility Equipment for FY 2026. Sales are projected to increase by 4.0% year-on-year to JPY 3,949.4 billion.
Kiyoshi Hishinuma: Excluding the impact of foreign exchange rates, sales are expected to increase by 2.1% year-on-year. Details of gains and losses by region will be explained on the following pages, broken down by mining and construction equipment. Page 18 shows the mining projection for sales by region for FY 2026. Sales of mining equipment are projected to increase by 2.1% year-on-year to JPY 1,944.7 billion.
Kiyoshi Hishinuma: A decline in sales in Asia due to sluggish coal demand and the Middle East due to regional situation will be offset by increases in sales in Latin America, where copper mining demand is strong, and in Africa, where gold mining demand is strong. Excluding the FX impact, sales are projected to be virtually unchanged at -0.3%. Page 19 shows the Construction, Mining & Utility Equipment projections for sale by region for fiscal 2026. Sales is projected to increase by 6.0% year on year to JPY 2.047 trillion. Excluding FX effects, sales are expected to rise by 4.5% year on year.
Kiyoshi Hishinuma: Despite expected sales decline in the Middle East and Asia due to the situation in the region, sales is projected to increase, supported by solid non-residential and rental demand in North America, public investment in Latin America, and solid demand for medium-sized construction equipment for gold mining in Africa. Page 20 outlines the factors behind changes in sales and segment profit for Construction, Mining & Utility Equipment. Sales are expected to increase by JPY 164.0 billion year on year, driven by the positive effects of the weaker yen, higher sales volume, and improved selling prices.
Kiyoshi Hishinuma: Segment profit is expected to decrease by JPY 10.1 billion year on year, despite the positive effects of the weaker yen, higher sales volume, and improved selling prices due to the negative impact of factors such as impact of higher tariffs and rising procurement costs. The segment profit ratio is projected to decline by 0.8 percentage points year on year to 12.1%. Page 21 presents the outlook for Retail Finance. Assets are projected to increase by JPY 46.4 billion compared to the end of the previous fiscal year, driven by growth in new contracts.
Kiyoshi Hishinuma: New contracts will increase by JPY 63.3 billion year on year, driven by high utilization of financing in North America, Europe, Oceania, and Africa. Sales will increase by JPY 2.4 billion year on year, primarily due to the expansion of assets. Segment profit is expected to remain at the previous year's level, primarily due to higher costs. ROA is projected to decline by 0.1 percentage points year on year to 2.3%. Page 22 shows segment sales and profit projections for Industrial Machinery & Others.
Kiyoshi Hishinuma: Sales will increase by 5.5% year on year to JPY 252 billion, while segment profit is projected to rise by 9.4% year on year to JPY 41.5 billion. While automotive industry sales are expected to decline, primarily due to lower large press sales to the semiconductor industry are expected to increase due to customers' increased production. As a result, overall sales and profit are projected to rise. The segment profit ratio is projected to rise by 0.6 percentage points year on year to 16.5%. Starting on page 23, we will explain the demand trends and outlook for the seven major markets.
Kiyoshi Hishinuma: The unit demand figures for the seven major markets include mining. The figures for FY2026 Q1 are preliminary estimates from the company. Unit demand for FY2026 Q1 appears to have increased by 12% year on year. Following the trend from the Q4 of the previous fiscal year, demand remained robust, and in the other regions category, demand growth was driven by Africa, supported by strong demand for gold mines, and Latin America, where demand for copper mines and public investment remained solid.
Kiyoshi Hishinuma: Furthermore, while our demand forecast as of April had factored in a decline in demand in the Middle East and neighboring countries due to the situation in the region, demand in these areas is currently exceeding initial expectations. Taking these circumstances into account, we have revised our full year demand forecast for FY2026 to a year-on-year range of 0% to +5%. Page 24 shows demand trends and forecasts for North American markets. Demand volume for FY2026 Q1 appears to have increased by 11% year on year.
Kiyoshi Hishinuma: The demand from non-residential sectors such as data centers and the rental market remained robust. We have revised our full year demand forecast for FY2026 from the April forecast to a range of 0% to +5% year on year. We expect non-residential and rental sectors centered on data centers to continue driving demand. Page 25 shows demand trends and forecasts for the European market. Demand for FY2026 Q1 appears to have increased by +4% year on year.
Kiyoshi Hishinuma: We have not revised the full year demand forecast at this time, but we will closely monitor future developments, including the impact of the ECB's interest rate hike in June on Construction, Mining & Utility Equipment demand. Page 26 shows demand trends and forecasts for the Asian market. Demand for the first quarter of fiscal year 2026 appears to have increased by 4% year on year. In Indonesia, while demand from the thermal coal mining sector remains sluggish due to future uncertainty, demand from the agricultural sector, including food estate projects, has grown.
Kiyoshi Hishinuma: Furthermore, regarding other Asian countries, we had anticipated that rising energy prices caused by the situation in the Middle East would trigger economic slowdowns and lead to a decline in Construction, Mining & Utility Equipment demand. However, the actual decline in demand has not been as significant as expected. In India, demand for Construction, Mining & Utility Equipment remains robust, supported by public works projects and economic growth.
Kiyoshi Hishinuma: Taking these circumstances into account, we revised our full year demand forecast for FY2026 from the April projection to a range of 0% to -5% year on year. Page 27 shows demand trends and forecasts for the Japanese market. Demand volume for the first quarter of fiscal year 2026 appears to have decreased by 11% compared to the same period last year. Although we have not revised the full year demand forecast, the number of public works projects continues to fall below last year's level, and we will closely monitor future developments.
Kiyoshi Hishinuma: Page 28 shows trends and forecasts for the prices of major minerals related to mining equipment demand. Copper prices remain high, supported by robust demand, while gold is currently undergoing a temporary correction and is expected to remain at high levels going forward. thermal coal prices for both low-grade and high-grade coal are currently trending upward, partly due to soaring energy prices caused by the Middle East situation. We will continue to closely monitor developments. Page 29 shows the trends in demand for mining equipment.
Kiyoshi Hishinuma: Unit demand for the first quarter of fiscal year 2026 appears to have decreased by 12% year on year. Overall demand fell significantly due to a sharp decline in demand for coal-related machinery in Indonesia. On the other hand, demand for copper mines in Chile and gold mines in Africa has remained robust, and overall demand for mining equipment is expected to exceed initial projections. Taking these circumstances into account, we have revised our full year FY2026 demand forecast from April projections to a year-on-year decline of 5% to 10%.
Kiyoshi Hishinuma: Page 30 shows the sales forecast for the Construction, Mining & Utility Equipment, including equipment parts and services. In the Q1 of FY2026, parts sales increased by 18.4% year on year to JPY 286.5 billion. The aftermarket, including services, accounted for 54% of total sales, and total aftermarket sales, excluding the impact of FX, increased by 5% year on year. For fiscal year 2026, parts sales are projected to increase by 4.2% year on year to JPY 1,099.9 billion.
Kiyoshi Hishinuma: The aftermarket segment, including parts, services, and other items, is expected to account for 52% of total sales, and aftermarket sales excluding FX effects are projected to increase by 2.9% year on year. Next, I will explain the main topics. I am on page 43. Over many years, Komatsu has accumulated equipment operating data, construction data, and job site expertise through KOMTRAX, Smart Construction, and other solutions.
Kiyoshi Hishinuma: Based on these assets, we have gradually advanced AI usage across regions and businesses, and we have now strengthened our organization to accelerate global AI adoption, launching full scale deployment across the entire value chain, from R&D and manufacturing to sales and service. Going forward, we will further accelerate these initiatives to drive operational transformation and customer value creation across our global value chain.
Kiyoshi Hishinuma: Next, turning to page 44. Komatsu has begun deploying its Smart Construction digital job site management solution for Changi Airport Terminal 5 construction project, a major national infrastructure development in Singapore. By introducing advanced solutions, we enable real-time tracking of construction volume, smooth data sharing between machines, and project management utilizing construction data, contributing to improved job site efficiency and prompt decision-making.
Kiyoshi Hishinuma: Next, on page 45. Komatsu and the Atlassian Williams F1 Team launched the Komatsu Williams Engineering Academy in 2024 to nurture next-generation engineers. We have now launched the third term and will strengthen collaboration with Formula Student, a premier engineering competition for university students. I am on page 46 now. Komatsu has issued green bonds through a public offering in the domestic market. Proceeds raised from this issuance are planned to be allocated towards expenditures related to the rebuilding of Komatsu's new headquarters building currently underway.
Kiyoshi Hishinuma: From an environmental performance standpoint, the building adopts a design that reduces CO2 emissions, obtaining ZEB Ready certification in April 2026. Relocation to the new headquarters building is scheduled for January 2027. That concludes my presentation.
Operator: Now we would like to move on to the Q&A session. Now we would like to take the first question. Mai Kawas from Nomura, please.
Kentaro Maekawa: This is Mai Kawas from Nomura Securities. Thank you very much for the presentation. I have two questions. Regarding your demand outlook as well as your full year volume expectations, you have revised it up regarding this in the last three months. What kind of changes were observed? Originally, the risk related to the Middle East was accounted for, and I think you were a little bit conservative in your sales and demand expectations. I guess the risks didn't materialize as much. Is that the case?
Kentaro Maekawa: Or for North America and Latin America, inclusive of mining, apparently Q1 progress was quite good, so is it the other areas where you were able to see base demand improvement? Can you share that with us first?
Kiyoshi Hishinuma: This is Hishinuma speaking. Regarding the impact from the Middle East, as you rightly said, the impact was not as substantial, so that has been accounted for. Also by geography, we talked about it in the presentation, but North America was solid due to demand from data centers, and rental demand was brisk as well. By geography, we talked about this in the presentation, but for North America, Q1 alone, demand increased, exceeding 10%. Other regions, there were a lot of regions that grew positively. There were some regions, like Japan, that went down substantially.
Kiyoshi Hishinuma: But all in all, there were many regions that trended positively. For Asia, we were expecting some impact from the Middle Eastern circumstances. I would not say it was zero, but for the Philippines as well as Malaysia, there were some regions that were affected by fuel or oil prices. However, there were some offsets that led to the updated guidance or results. For the mining business, it is hard to predict by demand. When we talk about the overall picture, we talk about trends in commodity prices, and also we look at CapEx plans by mining majors.
Kiyoshi Hishinuma: We often explain in that regard. When it comes to sales impact, it is about when the deliveries are going to materialize, and there are some timing changes, so it is really hard to explain the mining business just based off demand. However, copper continues to be strong, as we have been communicating from before. What was positive on sales actually came from gold in Africa. That positively affected our mining business as well as some middle-sized construction equipment that are utilized at gold mines. Thank you very much.
Kentaro Maekawa: I have two follow-up questions. For North America in Q1, apparently demand was quite strong, and I think sales grew as well. For the full year, the growth rate apparently is a little bit smaller, but was it by chance that Q1 was good for North America? For Asia, I might be looking at the wrong slide, but when you look at demand, you have been revising it up. For sales expectations, I think you have been revising it down instead. For Asia, are there some differences in how you view demand and sales? You were saying some regions performed well, so can you give us more flavor on North America as well as Asia?
Kiyoshi Hishinuma: For North America, year-over-year, when you do the comparisons, as you can see on the screen, comparing against 2022 Q1 and benchmarking against that year, you could see how 2026 was. We were at 103, but in the previous year as well as the year before last, which was in 2024 and 2025, it was quite low. Percentage-wise, it trended high somewhat. However, it is true that the business continues to be brisk, so we are expecting a positive projection. For Asia, Indonesia accounts for a large part of sales, but in Indonesia, coal demand continues to be sluggish.
Kiyoshi Hishinuma: Therefore, we are expecting further deterioration, and that has led to these projections.
Kentaro Maekawa: I see. Thank you very much. My second follow-up question is about the impact on profits from a tariff point of view. In Q1 this year, you were able to see some refunds coming from reciprocal tariff. The JPY 30 billion, did that all materialize in the first quarter? For refunds, I think it is going to be an absence leading to a reactionary fall. For steel and aluminum, compared to your original expectations, it went down to JPY 88.3 billion instead. It is effective from 8 June. Due to inventory impact, I guess the impact is not accounted for the full year.
Kentaro Maekawa: There should be some lower impact from steel and aluminum going forward for next fiscal year. The reactionary fall from JPY 30 billion, is it going to be mitigated for next fiscal year? I might be jumping to conclusions talking about next year, but could you talk about Q1 refunds as well as steel and aluminum impact for next fiscal year? Thank you.
Hiroshi Hosotani: This is Hosotani, CFO. For tariff, as of April, we were saying JPY 30 billion. For refunds, it is steadily underway right now. In reality, for the refunds that have materialized in the US, the full amount received does not hit the P&L. Demand continues to be solid, and this time around, for Q1, approximately close to JPY 10 billion has already been refunded. That directly has affected the P&L. On the other hand, there have been some changes in tariff rates. For steel and aluminum tariff, 25%, especially for Japan, has been reduced to 15%. This gain has been accounted for in the guidance.
Hiroshi Hosotani: On the other hand, for the increases as of April, Section 122 at 10%. In the latter half of July, it was something that expired, but when we were making the guidance in April, we were not sure what was going to happen after 122, so we assumed 10% tariff rates. Due to the announcement by the US, it was replaced by 301, and 10% became 15% instead. That led to higher tariff costs. The impact is not material. That is what we are viewing. In our updated outlook, we have accounted for all the impact we are expecting from tariffs. Thank you.
Kentaro Maekawa: If that is the case, for refunds, you are planning for JPY 30 billion, and that has not changed. In the Q1, it was JPY 10 billion, and for the second and third quarters, the remaining JPY 20 billion or more should accordingly hit your performance. For steel and aluminum, for that part, the 25% to 15%. For next fiscal year, is that going to be a positive impact? There are some parts that are at 25% for this fiscal year, right? Or is that not the case? Can you please confirm?
Hiroshi Hosotani: This is Hosotani again. The first question was about refunds, but compared to the initial pace that we were assuming, actually, the refunds are being carried out faster than expected. We are expecting JPY 30 billion for the full year. Also, on the other hand, for steel and aluminum, we were assuming 25% in April, which went down to 15%. The inventory where we were assuming at 25%, we were not really assuming that this inventory was going to be outstanding next fiscal year. No.
Kentaro Maekawa: Half of the impact for 25% is this year, and the other half is for next fiscal year? The fact that 25% went down to 15%. Excuse me, let me correct myself. You mean the gain portion, when that is going to hit?
Hiroshi Hosotani: Regarding how much is going to be carried over to next fiscal year, unfortunately, I am not able to give you clear guidance at this moment. Thank you.
Kentaro Maekawa: I see.
Operator: Thank you very much. Next question, please. UBS Securities, Sasaki-san, please.
Tsubasa Sasaki: Can you hear me? My name is Sasaki from UBS Securities.
Operator: We can hear you, yes.
Tsubasa Sasaki: Well, again, I have two questions, if I may. First, they are both related to new plans. First is slide number 20, on page 20. You talk about the gains and losses in detail. Well, yes, increase the volume, I understand that, but about the selling price and the expenditure. So the selling price, it was JPY 68.9 billion initially, but it is JPY 64.6 billion. So what is the reason for this difference? Also, the production cost difference. For the Middle East, the logistics will change. I do understand that, but still, it is an increase of JPY 3 billion. Well, the cost has gone down by JPY 3 billion.
Tsubasa Sasaki: But in the earlier slide, you said the tariff cost is JPY 12 billion and the shipping cost increase in the Middle East is JPY 4.4 billion. So plus, minus, it seems that there is an additional JPY 3 billion to JPY 4 billion. So I want you to explain about this. So that is my first question, please.
Hiroshi Hosotani: Hosotani here. About your question, you are asking about FY26 profit and the projection. Well, 3 months ago, in your basic plan on page 22, the selling price was JPY 68.9 billion, whereas this time it appears to be JPY 64.6 billion. So it is down by JPY 4 billion.
Tsubasa Sasaki: What is the reason for that? Also, the production cost, I think overall, it appears to be the reduction of JPY 3 billion. But in the earlier page, on page 15, where you talk about the tariff cost going down by JPY 12 billion and the lease cost will increase JPY 4 billion. So I think there should be more cost, but plus, minus on page 15, it seems that there are other reasons for the increase in cost. So that is the intention of my question here.
Hiroshi Hosotani: Okay. So about the price. The change from April is about JPY 4 billion. Well, in some of the regions, there has been a slight adjustment in the selling price. Well, depending on the region, there is foreign exchange fluctuation. In line with that, we have made adjustments in the selling price. As a result, this time, there is a slight drop in the selling price. So that is the pricing.
Tsubasa Sasaki: About the cost?
Hiroshi Hosotani: Well, yes. We talked about the impact of tax, and this is all included.
Tsubasa Sasaki: But other than that, what increases the cost?
Hiroshi Hosotani: Against April, amongst the cost, the steel cost, the unit price has gone up vis-a-vis what we projected in April. Well, there is a several billion JPY increase because of the increase in steel price.
Tsubasa Sasaki: What regions are you talking about? Can you explain?
Hiroshi Hosotani: Well, in some of the regions. It is not one single country, so I really cannot respond.
Tsubasa Sasaki: In multiple countries, that is happening, right?
Hiroshi Hosotani: Yes. Well, price adjustment. We are making price adjustments as needed, observing the situation. Okay.
Tsubasa Sasaki: The second question, about mining sales projection. That is my second question. Well, the last time, compared to your initial plan, excluding FX, if you look at the sales trend, Asia seems initially to be about minus JPY 15 billion, but now it is 36. So why is Asia bad? In Latin America, you say copper is good, and Africa gold is good, but can you explain? Oceania, too. Compared to the initial plan, you have made an upward revision in sales. What has driven you to make such upward revisions in sales? Please. That was my second question.
Kiyoshi Hishinuma: Hishinuma. About mining, especially Asia, Indonesia. Well, we continue to see a sluggish demand. I do understand that the price is $60, but the cost remains high. DSI has started. B50, so it is more than 50%, but it seems to be starting from September, so by 50%. I think that this has an impact. Also, as we always talk about the idle rate, in March it was around 18%, I believe I said. Currently, the situation is quite bad. April, May, 20%, and also as July, again, it is around 19% for June.
Kiyoshi Hishinuma: I think that given this high rate, it will not lead to introducing new machines, and therefore, we are being conservative in terms of the projection. For other regions, copper, gold, yes, compared to April, things are improving. As I said earlier, first, we have to look at the mineral prices, and it is steady. Also, the resource companies, their capital investment, again, is solid. 2025, 2026, 2027, it is not going down. We do understand that it will risk. About our sales projection, again, we have to think about the delivery timing, and therefore there will be some ups and downs in terms of the different regions.
Kiyoshi Hishinuma: For this fiscal year, compared to our April projection, when we explained in April, compared to that, within this fiscal year, we believe that there are more machines that will be delivered within the fiscal year. Gold and copper, and in terms of region, Australia, Latin America, the sales have been upward revised because of this background. Thank you.
Tsubasa Sasaki: Australia. What led you to the upward revision? Australia. Coal? I think it is coal. Yes. No, is it nickel?
Kiyoshi Hishinuma: Yes, it is nickel, not thermal coal.
Tsubasa Sasaki: Thank you very much.
Operator: Thank you for the question. Let's move on to the next one. Satoshi Taninaka from SMBC Nikko, please.
Satoshi Taninaka: This is Satoshi Taninaka from SMBC Nikko Securities. Thank you for taking my question. I have two questions. The first one being about this time for mining equipment and the upward revision. How much strength have you accounted for, or how conservative, or how achievable are the plans? In Latin America, excluding FX impact, I think it grew by 24% for Q1. If you exclude FX, the growth is likely to be only 6% from the original 2% for the year. For North America, it grew by 10% for Q1, but it was -1% for the year, but you only changed it to flat year over year.
Satoshi Taninaka: When you look at the growth in Q1 alone, the single-digit percentage growth you are expecting for the full year looks a little too conservative. For this upward revision that you did, have you accounted for the third and fourth quarters that conditions are going to stay strong, or have you only accounted for the strength you've seen in the first quarter? Can you share with us your views?
Kiyoshi Hishinuma: This is Hishinuma speaking. Basically, typically, we do not do revisions in the first quarter, but we did it this time around because Q1 was quite strong, so we reflected that in our expectations. Of course, we have been reviewing. We do create full year expectations as well, and we have accounted for some impact. At this point in time, we look at the order fulfillment rates for mining, and we are currently at around 70% to 80%, and that has led to our current projections. To say a little more, for the deliveries that can be made during this fiscal year has been accounted for in our updates.
Kiyoshi Hishinuma: We are not yet at a time where we can exceed what we have set forth. Thank you.
Satoshi Taninaka: I see. My second question is regarding tariffs and passing on prices, increasing selling prices. You are not doing that for tariff increases. You do price increases inclusive of tariffs and not just for tariffs alone. I presume that Caterpillar is not as aggressive either. For price increases, is it easier to do? Because you're getting the refunds, have you been receiving requests from customers to cut your prices? Have you decided on a policy as to what you're going to do with the refunds you get?
Hiroshi Hosotani: This is Hosotani speaking. Regarding tariffs. Tariff costs and passing that on to selling prices is a practice we don't resort in. What we are doing when it comes to price improvement are through our regular price increases. Up until now, tariffs were irrelevant to our price increases, and this policy remains unchanged. Therefore, regarding the refunds of tariffs in Q1, it proceeded quite rapidly. For this fiscal year, as planned, we are expecting JPY 30 billion of refunds. This is irrelevant to our pricing strategy for customers, so this will be reallocated back to our costs and inventories.
Satoshi Taninaka: I see. Thank you. That's all from me.
Operator: Thank you. The next questioner, please. Nikkei, Otake-san, please.
Reiko Otake: This is Otake from Nikkei. Can you hear me?
Operator: Yes.
Reiko Otake: Thank you very much. I would like to ask you about pricing strategy. I heard about your explanation about the FX rate, and you have made some adjustments in the pricing in some regions. Your understanding of the competition about their pricing, the price increase, going forward, do you have any change in your thinking as to raising your prices?
[Company Representative] (Komatsu): Hosotani will respond.
Hiroshi Hosotani: Well, price increase and our pricing policy. There are different factors that determine the pricing. For example, we look at each of the markets, and when we produce our products, there are different raw materials that we use. We look at the raw material cost and the inflation of the market and demand. The competition, of course, is something that we do make reference to, but we overall take into consideration different factors in determining our prices. This policy continues to be the case. We have not made any changes.
Hiroshi Hosotani: In regards to tariffs, as I said, the cost increase due to tariff, this has not been passed on to our selling price. That has not been the strategy for us. We look at different aspects. Well, it depends on the market, but we look into different factors in deciding when and how much to increase the price.
Reiko Otake: Thank you for that explanation. Having heard that, you say that you incorporate different factors and the market environment is changing. From your perspective, is it now easier to raise prices or is it more difficult? What is the environment vis-à-vis price increase?
Hiroshi Hosotani: Well, the environment. Rather than talking about the environment, our way of thinking is that prices are. We offer the value to our customers, and the price has to reflect that value that we offer, the products and service that we deliver. If the value of those products and services go up based on that, aligned with that, we would raise the price. That is our way of thinking. You are asking whether the environment is making it easier or less easy to raise prices.
Hiroshi Hosotani: Rather than that, what is important is to look at whether or not our products and service value is increasing or not, because this is the trigger which determines whether or not we raise prices.
Reiko Otake: Thank you.
Operator: Thank you for the question. Unfortunately, we only have limited amount of time left, so the next person will be the last person. Adachi-san from Goldman Sachs, please.
Takeru Adachi: Hello, this is Adachi from Goldman Sachs. Thank you for taking my question. Can you hear me? Yes. The first question is about numbers and the second question about orders. I just wanted to confirm some numbers. When you look at your results and plan and the volume product mix, can you give me the details and the breakdown? Out of production costs, can you give me the breakdown between tariff impacts and tariff refunds and the Middle Eastern impact as well? Thank you.
Hiroshi Hosotani: This is Hosotani speaking. For Q1 results, do you need those numbers?
Takeru Adachi: For volume, product mix results and expectations, and for cost, just the results from the first quarter is what I need.
Hiroshi Hosotani: For volume and product mix, year over year, -4.9, and the details were, first, for volume, sales has grown. Volume impact, there was a positive impact of, roughly speaking, JPY 5 billion. So +5 out of the total -JPY 4.9 billion. There was -JPY 10 billion also as an item, first related to cost increases in the Middle East shipping. Compared to assumptions from April, it turned out to be higher, so there were some cost increases there. The rest, there has been a mix difference year over year, area mix wise. Asia business was down. That led to more negative impact. That is a comparison year over year.
Takeru Adachi: Also regarding tariffs too, right?
Hiroshi Hosotani: Yes. The breakdown of costs, production costs. The breakdown of JPY 18.8 billion regarding tariffs, cost itself was about JPY 21 billion. On the other hand, for refunds, like I've repeatedly been saying, in Q1, it was a little bit over JPY 9 billion that was accounted for. So net, costs were a little bit over JPY 10 billion. That's the impact, an increase year over year.
Takeru Adachi: How about the inflation impact coming from the Middle Eastern circumstances or Middle East situation impact? Oil cost increased. However, in Q1, over the course of the 3 months of Q1, the impact was not that big, and it was only several billions of yen. I'd like to ask you about the BB ratio. Can I ask you the situation of Komatsu Limited and Komatsu Germany? For Komatsu Limited, Asia is a little challenging, but the BB ratio looks good. So I was wondering where you're getting the increase from and what are the destinations as well as the products.
Takeru Adachi: For Komatsu Germany, the PC series year over year, it looks 50% worse, so can you also walk me through the reasons why?
Kiyoshi Hishinuma: This is Hishinuma speaking. For the BB ratio, it's a 6-month average that is being utilized for the numerator and denominator. So when we make shipments, it goes down, so it's a little bit hard to track. For Komatsu Limited, Indonesia is performing poorly, but from a demand point of view or orders point of view, shipments are proceeding whilst we're not receiving orders. That's leading to these results. For example, for mid-size dump trucks that we make in Ibaraki, if we're able to see an increase, we'll see better numbers. It's not just Indonesia. That impacts the BB ratio, too.
Kiyoshi Hishinuma: For Germany, on the other hand, the value is high, but on a unit basis or volume basis, orders have been building up quite nicely. The order backlog are at extraordinary levels. However, when we go through shipments, the numbers turn out to be looking like this. So it's a difficult KPI to manage and communicate about.
Takeru Adachi: For Komatsu Limited and midsize dump trucks, are they increasing because of the US or Australia? Is that where they're shipped to?
Kiyoshi Hishinuma: Africa, and we've been seeing an increase there. When we see an increase towards those destinations, we see the numbers turn out to be this way for BB.
Takeru Adachi: Thank you. Sorry, I exceeded the given time.
Operator: So unfortunately, we have run out of time, so we would like to end the Q&A session. This concludes Komatsu's fiscal 2026 Q1 results briefing. Thank you very much for joining today.
