Now we would like to commence the Nippon Sanso Holdings Corporation earnings call for FYE 2025 in the second quarter. Thank you very much indeed for taking time despite your busy schedules. My name is Ishimoto from IR team. Thank you for joining this conference. Some housekeeping announcements. First, the conference materials are the financial results, Tanshin, the earnings call reference that we have just released. Please have these materials ready. Today's main speakers are Hamada, President and CEO, Draper, Senior Executive Officer, Group Finance and Accounting Office, and CFO, and Kajiyama, General Manager of IR. In addition, Kubo, Executive Officer, Group Corporate Planning Office, Miki, Senior Executive Officer and CSO, the Group Sustainability Management Office, and Yoshida, General Manager of Accounting, are also in attendance. Today's agenda begins with explanation from CEO Hamada, CFO Draper, and IR GM Kajiyama, covering Q2 results based on the materials.
We have time for Q&A in the end. Zoom simultaneous interpretation function is available for English and Japanese. Please select your preferred language in the Zoom control panel. If you prefer communicating in English during Q&A, please set the Zoom audio language to English. Now, Hamada-san, over to you.
Hello, everyone. We are having this earnings call a bit earlier than before. Thank you for joining. This is Hamada from Nippon Sanso Holdings. Thank you for taking the time to join our second quarter earnings call today. As usual, the global situation and economic environment, I would like to briefly touch upon these topics. There are geopolitical issues that remain unsolved. Therefore, there is still a lot of tension in the world. Amid such environment, the global economy, Europe and United States, inflation is settling down and interest rates had remained high, but also countries have started to lower interest rates, including United States. In the United States, there is the presidential election, and in various countries, there are many elections, and a ruling party and opposition party being replaced, and the main force being changed in various governments.
There is a lot of change in the world, and that has a substantial impact on the global economy. We think such trends may continue. Our group, we want to have an accurate understanding of such global trends, and we want to be able to continue business in a flexible and agile manner. Financial performance, we will refer to later on, but in this business environment, we have approximately 20,000 employees and staff. Thanks to the sincere efforts of our employees and staff, as well as the support of our customers and other stakeholders, we are making steady progress towards the goal of the final year of our medium-term management plan and its Vision 2026. First, I wish to express my gratitude in this regard. Concerning the business trend, gas volume is on a declining trend, and there are ups and downs.
But for example, in the United States, cylinder and equipment business somewhat slowing down. Small users use a lot of these services, and it is the fundamentals of the gas business. At one time, semiconductor specialty gas was at its bottom, but mainly for memory-related semiconductors, we are seeing a recovery trend. I think you hear and see in the media a lot about AI-related news. Logic. Semiconductor manufacturers seem to be struggling amidst the AI trend, and utilization rate in the factories seem to be lagging behind. We want to make our utmost effort to continue our business, a continuous stable supply of gas. Based on that, we want to continue to grow, and we want to enhance our corporate value. These, I think, are the important points for the NSHD Group. In this Vision 2026, there are five focus areas like operation excellence and pricing.
Each segment also has its own strategy. So bearing these in mind, we want to make our utmost effort. Four or five years have passed since we transformed into a holding company structure. We want to capitalize on our strengths to our maximum extent, and we want to be clear on the roles of the holding company as well as operating companies. Details of financial performance will be explained later on by Mr. Draper and Mr. Kajiyama. To summarize what I just mentioned, customers and social trend, we have to be able to respond flexibly and in an agile manner. Operational excellence, productivity improvement, price management, we want to continue such efforts so that we can maximize our profit. Business expansion opportunity, we want to be able to capture as much as possible.
Mainly around sustainability, non-financial KPIs, we want to work on them as well, so that we can respond to the fundamental needs of society. Through such efforts, we want to continue and commit to enhancing our corporate value. May 2025, we announced our medium-term management plan, NS Vision 2026. As written on the slide, we have five focused fields. We have explained our initiatives for the four years through March 2026. Today, I would like to talk about last fiscal year's performance in terms of non-financial KPIs of our medium-term plan, introduce our sustainability initiatives, particularly in the environment field. 4:00 P.M. Japan time, there was a business acquisition announcement in Europe that we would like to explain about this business acquisition in Europe. These are the topics I want to share with you today.
Toward the fiscal year ending March 2026, which is the final year of NS Vision 2026, we set financial and non-financial KPIs. The non-financial KPIs, we set a target for each of the items of E, environment, S, society, and G, governance, and the numbers are as written on the slide. First quarter results, when we announced that, we were not able to explain about non-financial KPIs because a lot of the matters were not approved.
Today, we are ready to explain about this topic. We have non-financial KPIs, one of the indicators that linked to executive compensation. We have non-financial indicator linked to executive compensation so that it will become an incentive for executives. We will continue to thoroughly implement environmental management, occupational health, promoting women's participation in the workforce, and compliance education. For more information on our sustainability initiatives, please refer to our recently released integrated report.
There is a lot of detailed explanation there. Next, I would like to explain about our group's material balance and environmental contribution. The input column on the left side of the slide shows the raw materials, energy, and water resources required for our business activities, while the output column on the right shows the amount of greenhouse gases, water, waste, et cetera, emitted as a result of business activities. The light green box shows the amount of greenhouse gas emissions reduced by our customers through the NSHD Group products and services, including gas. I may be repeating, but the characteristics of our group's business is the fact that our group's energy consumption is mainly electricity. As a result, Scope 2 accounts for approximately 80% of greenhouse gas emission, and the amount of water resource used and discharged is small compared to the scale purchases.
As a major power-consuming industry, NSHD aims to reduce GHG emissions by replacing air separation units with energy-efficient models and promoting efficiency in gas production by scaling to meet demand and optimizing the plant operation. We are also focusing on the future energy mix of power companies, aiming to minimize Scope 2 emissions and pursuing business opportunities in carbon capture, so-called negative emissions. Next, regarding environmental topics, we are also committing to biodiversity conservation. In August, we supported the idea of TNFD, joined the TNFD Forum, and registered as a TNFD Adopter. As a result, we will begin disclosing information based on TNFD recommendations from FYE March 2026. We also introduced further biodiversity initiatives. Recently, from July, we joined the OIST Coral Project, supporting the project with Thermos bottle sales.
On sustainability topics, we will hold an online sustainability IR conference on December 6th at 3:00 P.M., led by CSO Miki. We will present our sustainability strategies and initiatives under NS Vision 2026, so please join us. Further details will be emailed soon by the IR department to investors and shareholders. Next, as I briefly mentioned earlier, at around 4:00 P.M. Japan time today, we released an M&A announcement in Europe, which I will now introduce. This slide was not included in the deck uploaded to our website at 3:00 P.M. Japan time due to European press release timing. Let me introduce about the details, and you may not be able to see it, but the deck will be updated in a day or two. Our European subsidiary, Nippon Gases Europe, has signed a contract to acquire 51% of the Italian engineering firm, Polaris.
Polaris designs and manufactures air separation units and purifiers, providing equipment and engineering services mainly in Europe. In industrial gases, they focus on small and medium-sized air separation and unit and nitrogen generator. This acquisition gives us a majority stake in Polaris and enhances NGE's engineering capabilities. It strengthened our proposals to clients and allows us to pursue carbon-neutral business opportunities. We also aim to create synergies with our Japan-based plant engineering center of TNSC. The group-wide synergy is going to be demonstrated. Polaris has a footprint not just in Europe, but Korea and other Asian countries as well as U.S. Next, I will explain our upcoming CapEx plans and investment plans. Since the first quarter, i.e., March 2022 earnings release, we have shown CapEx plans by industry to give a comprehensive review of customer sectors. To achieve strong growth in the future, continuous CapEx is essential.
As of September 30, 2024, our backlog is around JPY 160 billion. Comparing to Q1, it has decreased. This is due to the carbon neutrality-related energy industry targeted larger scale project needed to be canceled. This is one reason. Comparing to Q1, there was a slight appreciation of the Japanese yen, so there has been FX impact. These are the key reasons. In terms of the number of projects, completed and the newly acquired one was about the same, so the total number remains the same. Given the situation, approximately 45% of these projects are related to environmental and hydrogen society contributions. As noted on the slide at the bottom, this scope covers projects above JPY 500 million, with the smaller projects excluded. Moving forward, we plan to present our growth potential by quarter, disclosing CapEx status. This is end of my part.
I will hand over to CFO Alan Draper to talk about the Q2 earnings overview.
Thank you very much, Hamada-san. I also appreciate everyone joining our Q2 earnings call. For the quarter of July 1st, 2024 through September 30, 2024, revenue increased 3.3%. Excluding the favorable impact of the weakened yen, revenue increased approximately 2%. Core operating income increased 10.4%. Excluding currency impact, COI was up 8.7%. The COI margin as a percent sales increased to 14.4%, up 90 basis points, and EBITDA as a percent sales also improved to 23.3%, up 70 basis points.
As in the previous quarterly report, year-over-year growth and margin improvement were driven by price management, stabilizing costs, and sustained operational excellence, with productivity and best practices continuing to be leveraged across various businesses and countries. These gains were partially offset by the impact of lower volumes and cost inflation. Please see the right-hand side of the page. This includes our year-over-year revenue analysis for the consolidated group.
With respect to the Q2 revenue variance analysis, NSHD experienced a favorable impact of 1.2% from currency. Outside of currency, price is positive 1.8%. Volume, negative 1%. Pass-through and surcharges were up 0.6% from increasing energy costs in the onsite business. The other category, which includes M&A, divestments, deconsolidation, and equipment activity, was favorable 0.8%. During Q2, NSHD recorded a non-recurring impairment charge of JPY 10.7 billion related to the non-recoverable portion of a hydrogen construction project that was canceled because of a renewable diesel customer bankruptcy. We are disappointed with the situation, and the global HyCO team is actively working to utilize and/or redeploy these assets. In addition, internally, we will continue to analyze customer financial risk, strategic outlook, and do our best to minimize and avoid repeating this in the future.
With respect to forecast, we have not modified our external sales and profit guidance because the changes that we see are mostly currency and are not overly material. Overall, if the macro conditions remain relatively consistent with the first half, sales will be within 1% of the current forecast of JPY 1.3 trillion, and we will have an upside of approximately +2% to +3% on top of the JPY 177 billion core operating income forecast. Our second half forecast assumed foreign currency rates of 145.31 USD to the yen and 157.72 euro to the Japanese yen. Therefore, depending on the performance of the yen, there may be some additional tailwinds due to the recent yen weakness.
In addition, due to the JPY 10.7 billion non-recurring charge previously mentioned, IFRS operating income is expected to decrease -3% to -4% range from the previous forecast, and profit before tax and net income will also be down similarly as the IFRS operating income reduction of -3% to -4%. Operating cash flows improved significantly in second quarter, resulting in first-half operating cash flow improvement of 36% or approximately JPY 31 billion versus prior year. This is a tremendous accomplishment and solid performance by the organization. Investing activities, which are nearly all capital expenditures, increased 57% from the previous year due to large capital projects. Therefore, from a free cash flow perspective, we were essentially unchanged despite the ramped up capital spend. As Hamada-san mentioned, on September 25th, 2024, NSHD released our integrated report for the fiscal year ending March 2024.
I encourage everyone to review this report as it offers valuable insight from our business leaders and outlines our strategies, goals, and the priorities we consider essential for our stakeholders. Additionally, as you meet individually with our IR team, CEO Hamada, or myself, we welcome your constructive feedback, both positive and negative, on the report and any suggestions you may have for improvement. Thank you very much for your attention. Now I will turn the call over to Kajiyama-san to provide some additional remarks. Thank you.
I am Kajiyama from Investor Relations. Thank you for this opportunity. I will now explain our performance by segment for the second quarter of the fiscal year ending March 2025. I will explain using the financial results supplementary material posted on our website today. Please refer to it if you have it with you. Before I go over the performance by segment, as written in the notes on page three, foreign exchange impact is calculated by applying the average rate for each currency for the period under review as the base rate and comparing it to the previous year. One yen depreciation against the U.S. dollar has an impact of approximately JPY +2.4 billion on revenue and JPY +340 million on core operating income, while against the euro, impact of about JPY +1.9 billion on revenue and JPY +350 million on core operating income.
I will now go over the performance by segment, but since the overview of our consolidated Q2 performance was already given by Mr. Draper, per CFO, I will explain the Q2 situation by segment. First, Japan on page 16. In the gas business, which accounts for approximately 60% of revenue, shipment volume of air separation gas, our core product, declined and impacted by the deconsolidation of a residential LP gas subsidiary, revenue decreased. In electronic material gas, shipment volume was flat year-on-year. On the other hand, in equipment and installation, since many projects generate revenue in accordance with the progress of projects, revenue increased year-on-year for both industrial gas and electronics. Effective price management and strong performance in equipment and installation contributed significantly to increase in segment income year-on-year. As a result, revenue was JPY 93.9 billion, a year-on-year decrease of JPY 600 million, or 0.6%.
Segment income was JPY 10.4 billion, a year-on-year increase of JPY 400 million, or 3.4%. There was minimal foreign exchange rate impact on revenue. Next, Q2 performance of the U.S. business on page 17. In the U.S. business, shipment volume of our core product, air separation gas, increased. But for other gases, including electronics gas, acetylene, packaged gas such as dry ice, shipment was soft. In equipment and installation, sales of both industrial gas and electronics was soft. With regards to cost, we continued effective price management and productivity initiatives. As a result, revenue was JPY 86.9 billion, decrease of JPY 600 million, or 0.6% year-on-year. Forex impact was positive JPY 800 million, and excluding this Forex impact, revenue decreased by JPY 1.3 billion or 1.4%. Segment income was JPY 13.7 billion, year-on-year increase of JPY 1.5 billion or 12.4%.
Forex impact on segment income was minimal, but excluding this impact, segment income increased by 11.4%. Next, performance of the European business on page 18. In the European business, shipment volume of air separation gas declined slightly year-on-year, and sales of equipment and installation, including medical device, were strong. Regarding cost, continued efforts were made in price management and productivity improvement. As a result, revenue in Europe was JPY 80.4 billion, a year-on-year increase of JPY 6.2 billion, or 8.4%. Forex impact was JPY +1.7 billion, and excluding this impact, revenue increased by JPY 4.6 billion or 5.9%. Segment income was JPY 15.2 billion, year-on-year increase of JPY 2 billion or 15.1%. Forex impact was positive JPY 300 million, and excluding this impact, segment income increased by JPY 1.8 billion or 12.5%.
Next, Asia and Oceania on page 19. In Asia and Oceania, the core products, unlike in the air separation gases, increased the shipment volume year-on-year. In LP gas, which is largely sold in Australia, both unit price and volume increased. Additionally, gas and equipment in electronics, accounting for 40% of total sales, increased as well. With weaker yen, sales were JPY 44.1 billion, up JPY 4.5 billion or 11.3% year-on-year. Excluding FX impact at JPY 1.3 billion, the revenue increase is at JPY 3.2 billion, or 7.7%. Next, segment income was JPY 4.5 billion, year-on-year of JPY +100 million or 1.6%. Excluding the JPY 300 million FX impact, the segment income remains flat year-on-year at 1.8%. Excuse me, down by 1.8%. Next, Thermos business on page 20. In Japan, the sales, particularly portable markets, were steady.
Sales from production bases in Asia were solid, but sales by equity method affiliates in other overseas regions were soft. In terms of profit, we have introduced a new product with updated colors and functions aiming to minimize yen depreciation and rising costs. As a result, sales were JPY 8.1 billion, an increase of JPY 400 million or 5.6% year-on-year. Excluding FX impact, the increase is + 5.2%. Segment income was JPY 1.4 billion year-on-year basis, almost flat or net 2.7% increase. However, segment income margin decreased by JPY 100 million or the 3.7% reduction due to the impact of yen depreciation. This concludes the segment explanations. Lastly, let me touch on the materials in the appendix. Page 32 onwards. Key financial indicators, essential cash flow, and the calculations and reference for necessary financial indicators are listed. On page 36, key management indicators.
Overseas revenue ratio at the end of Q2 was 68.2%, the 2.7% increase from previous year reflecting global growth. Net D/E ratio improved to 0.71x at the end of Q1 compared to 0.72x at the end of the previous year. Finally, regarding the materials on the European engineering company acquisition, as explained by Mr. Hamada, we will update and upload them to our website with the additional details presented today. Thank you for your understanding. This concludes today's explanation of the Q2 FYE, in the March FYE 2025. Thank you.
Mr. Hamada, Mr. Draper, CFO, and Mr. Kajiyama of IR, thank you for explanation. We will now start the Q&A session. Please take note of the following points. As mentioned at the outset, if you wish to communicate in the Q&A session in English, please join us via Zoom English audio line. When Mr. Draper, an English speaker, answers your questions, simultaneous interpretation into Japanese will be available on the Zoom Japanese channel. Since there is simultaneous interpretation, please pay attention to your talking speed. Speak at a moderate speed, thank you very much, and make your comments succinct. Your kind understanding is appreciated in advance. Next, I will explain about how to pose a question .
First, please raise your hand by clicking the raise hand button on the control panel displayed at the bottom of the Zoom screen. Then click on the Q&A button and fill in your company name and your name. You do not need to fill in your question. After we designate you, please state your name and affiliation, and then your question. We will respond to one question at a time. If you wish to cancel your question, please click the raise hand button again to put your hand down. Please note that your questions will be posted on our corporate website along with our presentation. This concludes my explanation. We will now respond to questions until the scheduled closing time.
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Mizuho Securities, Yamada-san, please start your question.
Thank you for explanation. This is Yamada from Mizuho Securities. I have about two questions. First, President Hamada, you talked about the backlog decline, more than JPY 10 billion non-recurring losses that incurred. I want to know about the background of this non-recurring loss. I think you have recoverable portion remaining on your balance sheet. What is the gross amount? 10.5% discount rate, I think you are quite conservative, but the remaining portion, is there a risk of having the remaining portion posted as a loss as well? In order to reduce the greenhouse gas emission on a cumulative basis, you engage in such projects, and do we not have to be worried about similar risk in those greenhouse gas emission reduction projects?
First, about the global decline and the accounting treatment, they are not necessarily equal to each other. 100 point something, you have those numbers, but the customer company files for Chapter 11, a lot is being still discussed. What we can incur as impairment up to Q2 is this amount, JPY 10 billion or so. For a while, various negotiations will continue, which means there are still some uncertainties that remain. The total investment amount in this project we have not announced. But against this total investment amount at this point in time, what we are able to estimate, we have posted as impairment. Please understand the situation that way. Should you be worried about similar cases? Carbon neutrality-related projects, specifically renewable energy or renewable diesel related projects. We do have multiple such projects, but this particular project was the largest.
We have to refrain from speaking detail about the counterpart, the customer, but their product price was not as good as they expected. Ultimately, they were not able to succeed in their business, this company had to file for Chapter 11. Technology and our initiatives, NSHD's initiatives, it doesn't mean that all of our efforts will immediately turn into risk. That is not how we evaluate the situation. As I mentioned, we are engaged in various kinds of carbon neutrality projects, ranging from large projects to small projects. Particularly in the United States, we have lots of large projects. Europe and Japan, we have many small projects. Technical advantage is not yet fully established. Therefore, there might be some similar partner companies. But we don't think there will be a significant financial impact on our company.
As I always say, carbon neutrality related sustainability and related investment projects. Concerning these projects, what projects will grow, what projects have growth potential, we have to closely monitor future growth potential as we continue such projects, we think. We looked around broadly about our overall situation, we did not discover similar projects, we did not discover projects in immediate danger. If Mr. Draper has anything to add about the numbers, any forecasted numbers.
Thank you, Hamada-san. I think you covered the comments well. We're not able to reveal a lot right now because there's ongoing negotiations between basically all parties involved. So what we've disclosed is about all we can do right now. But I agree with Hamada-san that as we went through all of the other projects that we've reviewed and approved, we don't see any major risk or any major problems in our backlog. Thank you.
Okay. Thanks very much for the elaborations. I think you are also involved in the direct air capture as well, but I think the project body of the DAC is much bigger, so I think we do not need to pay big attention to that project as well. May I understand that so far, the risk is under control?
Yes, that is correct. We have parent guarantees and other aspects in place on that contract. Thank you.
Understood. Thanks very much for the elaborations. [Non-English content]
I have another question. I have another question.
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I was trying to switch my channel. May I continue on? I have a second question. I was wondering if I can switch channels. Can you hear me?
Yes, we can hear you.
My second question. Electronics related. Equipment installation, they seem to be strong, including backlog, next year and beyond. Do you expect the strong performance to continue? Specialty gas shipment trend, what was the trend like in Q2, and towards the second half of the fiscal year, what is your forecast?
Thank you for the question. Large equipment and installation we have in Japan and Taiwan that impact our financial performance, but they are ongoing successfully. In Japan, there is some timing difference, but the overall plan is ongoing steadily. We think therefore there will be no impact towards year-end.
There is a large construction project going in Taiwan as well. It was successfully completed. Small and medium equipment installation projects, we have those projects as well, but the equipment installation projects that we are involved in, they are generally proceeding successfully. I cannot mention the customer name, but there is a plan to construct a factory for a large customer, which is being delayed in Europe and China. We have not formally received orders for these projects, which means that there is no direct impact on NSHD's financial performance. What will be the mainstream for AI? Which companies AI company will end up using what kind of technology? We do not have a full understanding of these AI-related trends. We have to closely monitor such AI trends. Semiconductor material gas, SSG, semiconductor specialty gas, SSG is the business we call it.
Roughly speaking, in each region, we have started this business. Q1 we didn't see so much of this trend. But in Q2, clearly, we are seeing better numbers. In particular, Southeast Asia, memory-related company, they use a lot of gas, and gas usage volume by these companies is steadily growing. When we prepared our guidance, we tried to incorporate as much as possible, and the business is proceeding quite successfully. Memory-related business, memory-related gas is growing, and same performance as Q2, or we may see further growth compared with the Q2. Some parts that could not grow in Q2, we think will be covered, in the future. We have Southeast Asia customers, and for some gases, we have inter-group business. We have gas trading within the group itself for some gases. Gas manufactured in the United States, the volume thereof is growing.
This gas is not so much directly delivered to American customers, but shipped globally. We are seeing growth in global numbers, and we expect further growth.
Understood well. Thank you very much. I want to confirm one point about the equipment installation. In Japan, the ruling party lost in the general election. Is that going to impact your equipment installation business?
Unlike the U.S. presidential election, I don't think there will be major changes as a result of the general election in Japan. I don't think Japan is in a situation where they can make abrupt changes. I think that there is a strong condition, therefore, will continue, and that Japan as a country wants to grow electronics and semiconductor business utilizing state-of-the-art technology. I think all people concerned have a consensus in this regard. Therefore, we are not worried. This concludes my response. Thank you.
Understood well. Thank you very much.
Thank you for the question. Next, BofA Securities, Enomoto-s an, over to you.
BofA Securities, Enomoto is my name. I have two questions. One, there is no revision of the guidance. Meanwhile, Core OI, there may be the potential upside within the range of 1%. Taking into consideration of that from first half to the second half, Core OI, I think is going to be the decrease than the profit, and that should be the guidance. From your perspective, what are the risks in the second half? It seems like the situation will be deteriorated, so any risk factors, for example, the deceleration of the downturn of the economy or slowing down or the reduction of the gas sales. How we should assess and view the second half? That is my first question. Thank you.
The figures and the details now to be explained by Alan Draper later on. No major risks we recognize at this point in time. As I said earlier, overall, total gas shipment is not rising. Depending on the product, when we have the good pricing strategy or on site, looking at each customer, we see some increase in volume. Overall, gas sales has not been increasing, so it is stagnant. In what condition the situation will be further deteriorated? One thing I can think of is the crude oil or regional conflict will be expanded, or export, import impacting shipping route disturbance. If those event occur, there will be the certain level of impact on our business. At this point in time, it is not foreseeable, and we do not project that. It is difficult to say our situation is steady when we look at the economic environment.
At this point in time, we do not at least recognize there is a major risk in the second half. As for the full year guidance, Alan Draper will supplement.
Thank you, Hamada-s an. Thank you, Enomoto-s an, for the question. Overall, as I mentioned in my prepared remarks, if you look at our full year, our guidance right now that we have from our budget was JPY 177 billion of Core OI . If things remain relatively flat and consistent and stable as we've seen, and we don't expect any major change, we could be 2%-3% higher than this on a full year basis. 2%-3% on JPY 177 billion would put us in the JPY 181 billion-JPY 182 billion range. We do expect a little bit of upside if things remain stable. One other comment I will make regarding the outlook. We always look and meet with all the finance team and global leaders, and we ask them how each segment is going to perform from a market perspective.
Right now, what we are seeing today is chemicals we think is going to be slightly negative. Energy, slightly negative. Other manufacturing, neutral. Health remains positive or healthcare, food and beverage, slightly positive, memory and electronics, positive, and then steel and auto, essentially neutral. If you balance those out, we are seeing more of the same. First half, we expect to see similar results in the second half. But certainly, we would like to see some improvement in the economic environment that we are dealing in so we can start seeing some volume improvement. Thank you very much.
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Thank you very much. Second question about CapEx. Initially, JPY 166 billion or JPY 170 billion was the level. But in the first half, it was a good level of progress, it seems like. Is my understanding correct? Full year CapEx, is there any possibility of having an upside from the current guidance level? Thank you.
The full year figure, I do not clearly remember. I will now pass that now to Alan Draper to respond. Roughly speaking, as I have explained, in terms of the numbers, the completed and newly acquired ones are the same, and so the total number remains the same. There are the large size projects being completed, or the canceled projects, the significant size. In the second half, there are a number of projects that are being completed. We have got a certain level, a certain number of projects expected to be completed.
Slightly above the budget, maybe the level, JPY 164 billion, JPY 166 billion. There may be a potential to have an upside from the given level. I will ask Alan Draper to explain the details.
Thank you for the question, Enomoto-san. Overall, as you saw, our spend in the first half of the year was around JPY 86 billion on capital. We are expecting to be pretty close to the budget, around JPY 166 billion, but it is probably going to be a little bit differently than we expected. The underlying capital spend will be a little bit lower, but we have additional acquisition activity, as announced today with the European business. That was not in our actual budget. It was an unexpected acquisition because it was opportunistic. We will probably have lower capital spend, higher acquisitions, and end up probably pretty close to that number still at the end of the year, just in a different manner. Thank you.
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Understood. Thank you very much.
Thank you for the question. Next, CLSA Securities, Zhang-san, please.
Hello, this is Zhang from CLSA Securities. Can you hear me?
Yes, we can hear you.
My question is about U.S., Europe, and Japan demand trend. July to September, I think demand was quite weak, particularly gas demand seemed to have been weak. Was there a special factor behind this weak demand? For example, U.S. hurricane impact or Europe, from around August, German PMI started to decline and Japan automobile decrease in production. July to September, what was the demand trend, and do you expect demand to improve from October to December? That is my first question.
Thank you for the question. Individual user environment, customer environment, individual industry environment, I do not have that data with me. Roughly speaking, there was no particular factor that impacted overall demand. European economy, particularly Germany, they seem to be facing a tough situation.
As a result, gas supply volume as well as gas production volume may not have reached expectation. This trend, will it recover in Europe? I am not sure whether we can see a recovery in Europe. In other areas, for example, heavy industry, piping, they may not grow, but we are good in resilient markets, healthcare, food, CO2 industries. We are strong with these industries, and we do think that there will be growth in these latter type of resilient industries, which will offset the possible growth in some other industries. U.S., I am not sure of details, but on-site, supply, and so forth, I think they are doing quite well. Cylinder gas business is pushing down overall performance as well as equipment like valves and welding equipment. These businesses are not growing. What does this mean?
We are not sure what this trend means, but generally, this is my personal opinion, but there is a U.S. presidential election, and maybe this seems to be the trend immediately before U.S. presidential election. Once the outcome of the U.S. presidential election becomes clear, U.S. might start to grow again. I am not worried about the U.S. so much either. Japan, we do not expect a significant growth from a structural perspective. But electronics-related gas, we think there is a growth potential.
Large factories, they are starting operation, and when various factories start operation, they will use various gases. Europe, U.S., Japan, we cannot expect a significant growth, but the declining industries might be covered by other growing industries. Pricing activity. We are engaged in proactive pricing activity in all industries. Therefore, when it comes to bottom line profit, we should be able to generate a sufficient bottom line.
Decline in volume is impacting revenue, but in terms of profitability, we think we have been able to meet our forecast. Please understand this trend this way. This concludes my response. Alan-san?
This concludes our response. Thank you.
Excuse me. Second question about the M&A, the acquisition in Europe, acquisition of a European equipment manufacturer. What is the background behind acquiring this company now? I think it is because you do not have. I think NSHD has your own equipment. Why are you adding this business? Just as circumstances, hydrogen-related equipment that you may not have focused on so much before, or for example, the acquisition amount or valuation of the company, if you could please comment on at what price you bought the company and valuation to the extent possible.
NGE, a European company, had a long-standing business with this company that we recently acquired. We knew this company well from before, and this company's main business is the aspiration unit and the nitrogen generator PSA equipment. This is not directly related to gas industry, but chemicals. Various chemical-related equipment that is handled by this company as well. This company is engaged in a wide range of engineering, particularly ASU, air separation unit , as you mentioned.
In Japan, TNSC manufactures medium to large-sized equipment, separators mainly speaking. But the newly acquired company has a small to medium-sized plants mainly speaking. Why did we acquire this company that manufactures separators? When there is load focusing in a particular area, we will not be able to shorten delivery time just in Japan. This is not an issue that arose recently. From the past, when there is a peak, we had to delay delivery time, and we were causing inconvenience to the customers, and we had been thinking about how to resolve this issue. We do not have so much large land and facilities to set up another place to manufacture ASUs, and economically, it is not reasonable either.
This company decided to accept a capital injection from our company. We want to utilize this company's engineering capability to the maximum extent. In that sense, I think it was beneficial to acquire this company. Gas generation equipment and ASU business, we think we can have a clear division of labor between NSHD and the newly acquired company. The carbon neutrality related technical capabilities with engineering, that is also available in this company that we acquired.
Gas equipment and ASU, compared with these kinds of capabilities that exist in TNSC, setting aside the size of equipments and plants manufactured, this is a company that has a broad range of capabilities. If possible, what was the acquisition price or valuation? If possible, if you can comment on these, it would be very helpful.
I am sorry, we cannot disclose that information. Thank you. That is it.
Thank you for the question. In the interest of time, there are questions that we could not take, and we would like to respond in an individual interview. Next, I would like to introduce the IR event. As was briefly mentioned in the presentation, the Sustainability IR Conference will be held on the 6th of December . Continuing from last year, it is going to be the third sustainability conference. We are hoping you will be able to join us. With this, FY 2025, the second quarter telephone conference is now to be concluded.