Ladies and gentlemen, thank you very much for taking time despite your busy schedules to attend today's Nippon Sanso Holdings Corporation earnings call to explain our financial results for the fourth quarter FYE 2024. My name is Momiyama from IR team. Thank you for joining this conference. Some housekeeping announcements. First, the conference materials are the financial results, timing, and earnings call reference that we have just released. I would like all participants to have them on hand. Next, we have three main speakers today. Hamada, President CEO, Draper, Senior Executive Officer, Group Finance and Accounting Office, and CFO, and Kajiyama, General Manager of IR. In addition, Moroishi, Senior Executive Officer, Group Corporate Planning Office, Miki, the Senior Executive Officer and CSO, Group Sustainability Management Office, and Yoshida, General Manager of Accounting, are also in attendance.
As for the program for today, first, Hamada, President CEO, Draper, CFO, and Kajiyama, General Manager of IR, will present the fourth quarter financial results and FYE 2025 forecasts, along with the presentation materials. We have time for Q and A in the end. Zoom simultaneous interpretation function is available for English and Japanese. Please select the language you prefer to communicate with us in the Zoom control panel. If you prefer communicating in English during Q and A, please set the Zoom audio language to English. There are some housekeeping announcements from IR department.
I am Kajiyama from IR department. I have one notification to make. In the notice concerning dividend from surplus released today, there was an incorrect unit of measure in the total amount of dividends and determined amount of dividends column in the Japanese version of the notice.
We sincerely apologize for any inconvenience caused, and we have promptly obtained the consent of the Tokyo Stock Exchange to release the correction. The English version of the release has not been corrected. This is the end of my report. Thank you. Now, Hamada-san, over to you.
Right. Good evening. In Tokyo, it is not yet dark outside, but good evening, everyone. This is Hamada of Nippon Sanso Holdings. Time flies, and it is now time for us to give this financial report. Thank you very much for participating in our Q4 earnings call amid your busy schedule today. First, the global situation. The situation is not necessarily good. There is a series of conflicts between Israel and Islamic organization, Hamas, and Russia is continuing its military attacks on Ukraine. Geopolitical tensions remain high. There is economic slowdown in China, high level of interest rates in Europe and U.S., and the continuation of the Japanese yen's depreciation. It is very difficult to forecast the future. Global inflation does seem to be settling down, though. In this business climate, in our group, we have approximately 20,000 employees.
All employees and staff have been making steady effort, thanks to the cooperation of stakeholders, including customers, we are making steady progress towards the final year goals of our medium-term management plan, NS Vision 2026. I would therefore, first like to express my gratitude. Draper and Kajiyama will explain the details of our business performance later. What is important now is the business environment surrounding our group. We have to have an accurate understanding of this, based on this, we have to work on the goals outlined in NS Vision 2026, as well as the strategy of each segment. We also have to consider the role of holdings, the holding company of the group. These are what I think are important points. I would now like to summarize the Q4 results as well as the full year.
At first, we've been trying to perform functions of industry's infrastructure, we want to utilize our strength in industrial gas business, as a result, we've been able to improve our performance, I think this is the result of the customers appreciating our business. Secondly, we've been trying to utilize communication with stakeholders in our corporate management. Mr. Draper and the other members of the IR team, together with myself, we've been increasing a number of meetings with investors, as a result, we've been able to receive a lot of feedback, we are trying to utilize that feedback from investors as much as possible in our corporate management. Number three, we have been trying to contribute to the electronics industry development, I will explain about the numbers later on. We are trying to contribute to the electronics industry development.
Last year, we were in a difficult situation when it comes to gas demand. Semiconductor companies' plants utilization rate is not increasing. However, customers in the semiconductor industry, they are very quick to respond to change in needs. So we have to be ready to changes in demand as well. Therefore, investment, including capital investment, we made maximum effort in this regard in Japan and Taiwan. We do hope that the market, including for gases, will recover this year. Number four, pursue operational excellence and work hard and encourage each other among other segments. Operation does not have a narrow meaning. It is not just referring to manufacturing. When we say operational excellence, we refer to the company's business as a whole. Price management is particularly important.
From the end of two years ago, we've been focusing on price management, this is proving to be effective. As a result, our numerical performance is improving. Number five, the core operating income exceeded the target of the NS Vision 2026. In our medium-term management plan, we set the various KPIs. In terms of profitability, improving profitability is one important KPI. The core operating income amount, we've been able to grow significantly, which means that we've been able to successfully implement the focus themes that we formulated. In May 2022, we announced the medium-term management plan, NS Vision 2026, and explained our initiatives for the four years through March 2026, along with the five key strategies or focus fields described here. This year will be the third year of NS Vision 2026, so it will be exactly the turnaround point.
In the strategic review for the fourth quarter of the fiscal year ended March 2024, I would like to review the progress of various KPI targets in the first half of the medium-term management plan, and explain the current situation and future of the electronics business, which we expect as a growth engine for the group. The medium-term management plan, MTP, NS Vision 2026, sets financial KPI targets and non-financial KPI targets for the fiscal year ending March 2026. First, I will explain the progress of our financial KPIs using this slide. We have adopted five indicators as our financial KPI targets. As indicators for growth, number one, there is revenue, followed by indicators for profitability, core operating income, and EBITDA margin. As safety indicator, we have adjusted net D/E ratio. As indicator for capital efficiency, we have ROCE after tax. These are the five financial indicators.
The previous medium-term management plan was called Ortus Stage 2, which ended in fiscal year ended 2021. The following year, there was lots of uncertainty because of the outbreak of COVID-19. As a result, we decided to delay formulation of the next medium-term management plan by one year. So we were originally scheduling five years for this current medium-term management plan. It shortened to four years. In the fiscal year ended March 2023, the next year, the company's implementing its current medium-term management plan, NS Vision 2026. When we formulated this medium-term plan, we set our targets based on the assumptions of the exchange rate around March 2022, where JPY 115 to the dollar and JPY 125 to the euro. A much higher yen than the current level.
However, since the uncertainty of the global economy was high even at that time, we set revenue and core operating income in terms of a range, not in absolute terms, as you can see in this graph. Therefore, if this is converted using the average rate for the most recent period, the revenue will be about JPY 1.1 trillion, and the core operating income will be about JPY 155 billion. Even if we consider the impact of the exchange rate, we can say is that revenue and income are on track to exceed our forecasts. Return on capital employed is what we use to monitor capital efficiency. This is the same as ROIC, return on invested capital. ROCE itself was introduced as a key management indicator in 2006, and it has been a familiar indicator since that time.
From this NS Vision 2026, we have changed the numerator of the formula from core operating income to NOPAT Net operating profit after tax to make it easier to compare with our competitors. The name of the indicator is also changed to ROCE after tax. We continued our effort to improve financial soundness, and we've been able to continuously improve our profitability as a result. We've cleared our target of 6%. Nevertheless, it is still at a low level compared to these major industry peers overseas, so we would like to improve it throughout the final year of the plan. Going back to EBITDA margin. Compared with the first year of the medium-term management plan, there has been about a three-point improvement, but still there are two points up to our target.
In addition, the adjusted net D/E ratio has steadily improved despite the early redemption of JPY 100 billion in hybrid financing in January 2024. Consequently, we think as of May 2024, the credit ratings of JCR and R&I, the credit rating of JCR is AA- and R&I A+, respectively, each improved by one notch. While some KPIs are exceeding the targets set for the final year of the medium-term management plan, as I mentioned before, in terms of profitability, there is still room for improvement. Therefore, we will implement strategic priorities to achieve even higher levels of profitability to achieve growth that exceeds GDP rates in all regions.
All right.
Next, I will explain the status of non-financial KPIs. We have third-party certification for our key sustainability data to ensure reliability for external reference. The latest data is disclosed in the integrated report published in September each year. Please note that the actual figures in this table are therefore not for the most recent term, but for FYE March 2023. As in the previous fiscal year, we expect to disclose results for FYE March 2024 by September. Nippon Sanso Holdings has established the Sustainability Promotion Committee, chaired by CSO Miki, to promote sustainability management in collaboration with operating companies and the firms in each region. The committee promotes sustainability management and helps forecast group-wide strategy. In April 2023, MSCI score was upgraded from BB to BB B and FTSE score from 3.2 to 3.5 in June 2023.
As a result, the group was selected for the first time for the ESG index and included in the investment portfolio of GPIF. We have been making steady progress of the sustainability management. Together with each of directors, executive officers, and employees, we intend to contribute improving management while seriously listening to the requests and comments of investors and shareholders. Next, I will explain the current status and way forward of the electronics business expected to become a growth engine. Please refer to the graph on the bottom left. In FYE 2024, the revenue to the electronics industry accounted for 17% of total sales, less than 20%. However, by segment, Japan and Asia & Oceania account for 28% and 40% of the total respectively. However, the U.S. and Europe account for less than 10%, so I think there is a huge growth potential moving forward.
The middle graph now shows the split by the product in the sales to the electronics industry in each segment. For example, in Japan, sales of the general gases other than specialty gas, number two, the special gases, and three, equipment and construction, are mostly balanced. In the Asia-Oceania region, specialty gases account for about 70%. Trends differ by region. The right graph shows product revenue by segment. As you see, Japan in purple is large. As for the U.S., it is not zero. We provide nitrogen in a slight volume. Consolidated sales now to the electronics industry declined by 2% year-on-year. This term, we expect an increase of customers' CapEx and utilization rate. We intend to accelerate our group-wide growth by responding to respective regional demands, while promoting the Total Electronics strategy.
To do so, the key to the next growth is to offer one sub-solution of supplying gases, specialty gases, nitrogen, dry air, and other general gases combined with equipment, construction, engineering, and other services in Europe, U.S., and Asia, and Oceania to meet the required specification of the customers based on the accumulated knowledge, technology, and experience of Japanese TNSC for nearly four decades. Certain facility and construction work to be enhanced in Asia & Oceania. Using DX, quality management, inventory management will be progress moving forward. TNSC has the organizational capability to offer solutions from the launch of customers' production plants, production to after-sales service when the plant is up and running. We have been deploying this business in this field. We also have sufficient technical capabilities to synthesize, purify, mix, and manufacture new quality electronic material gases to meet customer specifications.
Based on the idea of operational excellence to enhance the group's overall strength, the approach long refined in Japan, the proposal and offering of new solution, and for the electronics industry, and practice from each region have been shared among heads of the electronics businesses in Japan, U.S., Europe, and East Asia, to work together as a group to make further contribution to customers. In November 2021, we announced a plan to increase the production capacity of B2H6, diborane, and it was completed in Japan and ROK during FYE March 2024. In China, it is scheduled to be completed in February 2025. This timing is adjusted to the cluster operation timing of our customers. Diborane is a difficult product to handle since it is easily explosive and highly degradable, flammable, and toxic. In the production plant of diborane, there was some accidents and incidents reported.
It is used as a doping agent for boron in the semiconductor industry. We have a position, diborane, as one of our strategic products, and we want to build on this strong manufacturer position while becoming the preferred supplier of choice for our customers. Next, I will explain about the future investment execution plan. Since Q1 FYE 2022 disclosure, to facilitate better grasping of our overall CapEx plan, we indicate the chart by customer industry. Continuous CapEx is essential to ensure our continued strong growth into the future. That is the reason why we consider it is important to make the continuous CapEx. The backlog as of the end of FYE 2024 is approximately JPY 170 billion, of which environment and hydrogen and social contribution-related projects account for roughly 50%.
As stated in the note at the bottom, the scope of aggregation is roughly JPY 500 million or above, and the smaller amount is not included. We intend to continue indicating our growth potential in this manner quarterly to share the results of our CapEx. Now, our CFO, Draper, will walk through the financial results overview for the fourth quarter.
Thank you, Hamada-san. Hello, everyone. Thank you for joining our call. I will begin with our fourth quarter financial overview, followed by insight into the full year. Then I will provide an outlook for next fiscal year and an update on how we expect to progress in the final year of our midterm plan. Afterwards, the call will be passed over to Kajiyama-san, NSHD's General Manager of IR. During the fourth quarter, for the January through March period, excluding currency, NSHD reported a sales decrease of -2.7%. However, these results were negatively impacted due to a conversion of a Japanese subsidiary to a joint operation entity, and also due to the ownership interest reduction related to the LPG business in Japan.
Excluding both the currency impact and these business reorganization activities, sales were essentially flat year-over-year, with positive price offset by lower cost pass-through and a little bit softer volume. COI, or core operating income, improved JPY 5.7 billion or 16%. Ex currency, COI grew at 7.2% for the quarter. The team continues with solid price management and is working diligently on productivity initiatives and globalization efforts. In addition, core OI margin improved in the fourth quarter versus prior year by 140 basis points to 12.7%, and EBITDA advanced to 21.7%, an increase of 180 basis points. As noted on page 34 of the slide deck, Q4 contains a JPY 8.8 billion non-cash and non-tax effective gain because of the LPG business ownership interest reduction. That is included in non-operating.
This item has a meaningful impact on the fourth quarter and full year effective tax rate, as well as net income, and should be considered for forward-going projections. Shifting to the full year, sales ex currency were up 0.7%. Adjusting for both currency and the business reorganization activities previously mentioned, sales were up 2.2%, with strong price partially offset by cost pass-through and volume reduction. COI, excluding currency, was up a robust 27%, with COI margin expansion of 280 basis points and EBITDA margin expansion of 290 basis points. I am now going to turn the page over to cash flows, page 37. Cash flows were solid, with operating cash flows up JPY 28 billion or nearly 15%. Capital expenditures and investments were up JPY 26.6 billion or 27%, as we continue to make investments for our future success.
The capital spend was lower than expected as projected spend or project spend shifted to early fiscal year 2025. We don't see major issues with either the underlying construction or construction timeline as a result. We continue to see significant project opportunities ahead, and we'll prioritize capital for those projects that deliver the best economic and strategic value for our investors. In addition, I'm very pleased with our EBITDA to debt position. As you know, in the past, we were near 5 x, and with the fiscal year 2024 closeout, we ended this year with an EBITDA to debt of 3.4 x, which shows solid work and progress made over the past few years. In addition, I'd like to reiterate that our dividend policy remains unchanged. We are committed to issuing dividends to shareholders in a stable and reliable manner.
Supporting this commitment, we will propose to our shareholders at the annual general shareholders meeting on June 19th to raise our dividend 20% from JPY 20 to JPY 24 per share. Since fiscal year ending March 31, 2014, we've increased the dividend annually at a compounded annual growth rate, or CAGR, of approximately 14%. Page 28. With respect to fiscal year-end 2025 budget, first you have to consider that our outlook is using the same average currency rate as fiscal year 2024, with the main two currencies being the U.S. dollar at JPY 145.31 and the euro at JPY 157.72. Secondly, we expect to maintain strong price management, robust productivity and globalization initiatives, a recovery in electronics, positive trends in food, beverage, home care, and healthcare, and also positive attributes from internal and external carbon neutral initiatives.
We expect steel, automobiles, and manufacturing to be stable, and chemicals to be a bit weak still. As a result, we expect sales to increase 3.6% or JPY 45 billion to JPY 1.3 trillion in fiscal year 2025, and COI to increase by 6.6% to JPY 177 billion. All businesses are expected to contribute to the NSHD Group's growth and margin expansion. Lastly, in response to the many investor requests for financial update as to the expectations of the final year of our MTP fiscal year March 2026, I'll make a few comments, and we will also include some comments in the May 22 investor meeting. The estimates that I'm going to provide assume constant currency with fiscal year 2024 actuals, fiscal year 2025 budget, and now the 2026 outlook that I'm going to talk about.
We expect sales to grow at a minimum of 2.5% above the fiscal year end 2025 budget of JPY 1.3 trillion, and the core OI to grow at a minimum of 5% higher than fiscal year 2025 budget of JPY 177 billion. To clarify, these are the minimum growth rates that we expect to deliver on top of the fiscal year 2025 budget, as outlined on page 28, and is our current expectation for fiscal year 2026. Overall, NSHD remains well positioned to produce solid returns, to grow our business in terms of both quantity and quality of earnings, and to improve our financial health. Thank you for your attention. I will now turn the call over to Kajiyama-san to provide a detailed update on segment performance. Kajiyama-san, please.
I will now explain the Q4 performance by segment. I will explain using the financial results supplementary materials posted on our website. Please refer to it if you have it with you. First, CFO Alan Draper already explained our Q4 performance numbers, but if I may touch upon the business environment in Q4, against the backdrop of geopolitical tension in Ukraine and the Middle East, there was continuous supply chain disruption, trade friction, increase in commodity price, logistics cost, and labor cost due to inflation, and further weakening of the Japanese yen. While energy prices showed signs of stabilizing in some countries and regions, the manufacturing industry, mainly chemicals, was particularly affected by the economic slowdown in China, and demand in the semiconductor industry has yet to fully recover, although it is said to have bottomed out.
Under these circumstances, although there was a conversion of a Japanese subsidiary to a joint operation entity and deconsolidation, which had a negative impact on revenue in Japan because of price pass-through of increased cost in each region and other price management efforts, as well as a continuous focus on group-wide productivity improvement. Q4 consolidated income increased year-on-year, as explained before. I will explain the Q4 results by segment. For the full-year performance, please refer to page 20 onwards after the information about the Q4 results. The Forex impact is calculated as written on page three, 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 year depreciation against the U.S. dollar has an impact of approximately JPY +2.4 billion on revenue and JPY +350 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. The consolidated Q4 results for the fiscal year ended March 2024 were just explained by CFO Alan Draper, and I will now explain the Q4 situation by segment. First, Japan on page 15. Revenue was JPY 108.8 billion, a decrease of JPY 11 billion or 9.2% year-on-year. Excluding Forex impact of approximately J PY +100 million, revenue decreased by JPY 11.2 billion or 9.4%.
The factors behind decrease in revenue were the significant impact of conversion of a subsidiary from on-site production facility to joint operation and the deconsolidation of a residential use LPG gas subsidiary, as well as impact of lower shipment volume of packaged and bulk air separation gas, which are core products, and LPG, and weakening of electronic material gas shipment volume. In equipment and installation, revenue of industrial gas-related products increased, but for electronics, since sales of relatively large equipment and installation projects were proportional to the progress of the projects and were not concentrated at the end of the fiscal year, there was a year-on-year decline in revenue.
As for segment income, against the backdrop of soaring labor and logistics costs, we continued to focus on price management, but because of weaker shipment volume of air separation gas and electronic material gas, as mentioned before, and cost for deconsolidation of a subsidiary, dispersal of underutilized assets, facility maintenance and repair, as well as one of office and research facility relocation costs. Segment income was JPY 9.7 billion, a JPY 1.8 billion or 15.7% decline year-on-year. There was some positive Forex impact on segment income, and excluding this impact, segment income declined by 9.4%, and excluding one-off cost in Q4, segment income was almost flat year-on-year. Next, Q4 performance of gas business in the United States on page 16. Revenue in the U.S. was JPY 89.8 billion, a year-on-year increase of JPY 10.4 billion or 13.1%.
Excluding Forex impact of positive JPY 9.6 billion, revenue increased by JPY 700 million or 0.8%. Shipment volume of core product air separation gas increased, and although there was a decline in sales of industrial gas-related equipment installation, electronic sales increased, and we continued price management effort, which led to an increase in segment revenue. Segment income was JPY 14.1 billion, a year-on-year increase of JPY 3.2 billion or 28.7%. Forex impact was JPY +1.3 billion. Excluding this impact, segment income rose by JPY 1.8 billion or 15.2%. Shipment volume of air separation gas was favorable, and in addition to benefit from price management in line with cost increase and continuous effort to promote productivity improvement program, there was an increase in segment income. Next, gas business in Europe on page 17. Revenue in Europe was JPY 79.3 billion, a year-on-year increase of JPY 9.8 billion or 14%.
Forex impact was JPY +8.8 billion, and excluding this impact, revenue increased by JPY 900 million or 1.3%. Shipment volume of core products air separation gas declined slightly for packaged and bulk gas. Due to benefit from price management in line with commodity price hike, there was an increase in revenue. Segment income was JPY 13.6 billion, a year-on-year increase of JPY 4.1 billion or 43.3%. Forex impact was JPY +1.3 billion, and excluding this impact, the increase was JPY 2.8 billion or 26.7%. The main factors contributing to increase in segment income were effective price management, productivity improvement, and cost reduction effort. Next, Asia & Oceania on page 18. In Asia & Oceania, shipment volume of a core product, namely the packaged and the bulk separator gases declined, and the sales of electronic material gases in East Asia fell substantially year-on-year. Meanwhile, sales volume increased in LPG, largely sold in Australia.
As a result, revenue increased by JPY 3.8 billion year-on-year to JPY 40.8 billion, or a 10% increase. Forex impact is a JPY +3 billion. Excluding this impact, net sales in the business increased by JPY 700 million. Next, segment income increased by JPY 100 million or 4.5% year-on-year to JPY 3.2 billion. However, Forex impact had a positive impact of JPY 300 million. Excluding this impact, then the profit was in the decrease of JPY 100 million or - 3.5%. Next, Thermos on page 19. Revenues amounted to JPY 7.6 billion, an increase of JPY 100 million or 0.7% year-on-year. But excluding Forex impact of approximately JPY 100 million, revenues were down slightly by 0.3%. Sales of sports bottles in Japan, which accounts for more than 80% of sales, was strong, while sales in ROK and production plants in Asia were flat year-on-year. On the other hand, the sales at equity-method affiliates were weak.
Segment income was JPY 1.2 billion, a decrease of JPY 300 million or 20.5% year-on-year. Excluding the slight Forex impact, the profit decreased by 22.8%. Although we set new prices for new products launched from time to time, taking into account the weaker yen, we were affected by higher production costs due to the ongoing depreciation of yen. That concludes an explanation of each segment performance in Q4. Page 20 onwards show the full-year results as explained earlier. This was already covered by CFO Alan Draper. I will make a slight additional explanation. Non-recurring items in the full-year results for FYE March 2024 on Page 21 amounted to JPY 6 billion, of which the breakdown, as shown on Page 34, includes an accounting gain resulting from a change in the shareholding ratio of subsidiary in Japan.
IFRS operating income including non-recurring gains and losses was JPY 172 billion, an increase of JPY 52.5 billion or 43.9% year-on-year. In the appendix from Page 31 onwards, the key management indicators, the summary cash flow, and the summary statement of the financial position for FYE March 2024 are presented. In the key management indicators on Page 35, ROCE after tax, which is also included as a financial KPI in MTP, increased by 1.3% year-on-year to 6.7%. The adjusted D/E ratio improved significantly from 0.81 at the end of the previous term to 0.74x . CapEx and investment also increased steadily towards the future growth of the company with the year-on-year increase of JPY 26.1 billion to JPY 120.8 billion. This is the end of the explanation of the fourth quarter results for FYE March 2024. CFO has already explained the forecast for FYE March 2025, so I will skip that part.
On May 22nd, our CEO, Mr. Hamada, and our CFO, Mr. Alan Draper, will hold an earning results briefing. The heads of each segment will participate in the briefing to discuss our initiatives for the current term. I would be grateful if you could attend and deepen your understanding of your business. This concludes my explanation. Thank you very much.
President Hamada, Mr. Draper, CFO, and Mr. Kajiyama, Head of IR, thank you very much for our presentations. For now, we would like to have some time for question and answers. There are some points to keep in mind. As mentioned at the beginning of this conference, if you would like to communicate in a Q and A session in English, please join us via English audio line in Zoom.
Please note that when Mr. Draper, an English speaker, answers the questions, the Japanese audio on Zoom will be translated by simultaneous interpreters. In addition, we would appreciate it if you could pay attention to your talking speed and talk at a moderate speed as we will be providing interpretation audio by simultaneous interpreters. Next, I would like to explain the procedure for today's Q and A session. First, please raise your hand by pressing 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 name and affiliation. You do not need to type in your question. Once we designate you, please state your question. Before your question, please state your name and affiliation, and then ask your question in a one question, one answer format.
If you wish to cancel your question, please press the Raise Hand button again and put your hand down. Please note that your questions will be posted on our corporate website later, along with our presentation in the form of a transcript of the recorded meeting. We will now take your questions until the scheduled closing time in a first come, first served basis. Morgan Securities, Watanabe San. Morgan Stanley MUFG Securities, sorry. Watanabe San, please add your question.
From Morgan Stanley MUFG Securities, this is Watanabe. I have two questions or three questions. I will be brief. Number one, about the Japan segment. Q4, there is a one-off item, one-off expense, and including that, performance was almost flat year-on-year. JPY 1.8 billion one-off expense. Is that the correct understanding? Please allow me to confirm.
In Japan, a cylinder gas price hike is taking place, and if last minute demand is having an impact on revenue, please indicate so. This fiscal year, have you already been able to make some price hikes this fiscal year? Please comment if that is the case. Thank you very much.
Cylinder price hike. We are not seeing a significant last minute demand. Not as much as to say last minute demand. We emphasize the fact that there is a cylinder price hike and we have been taking action, and after the start of the new fiscal year, a price hike is to be reflected. The one-off item. I would like to call upon CFO, Alan, to explain about this one-off item.
Thank you for the question. Your understanding is correct. Between the TN Energy deconsolidation, some special refurbishments we had to do at a plant, as well as a relocation that we did. Those items are pretty much non-recurring from our normal standard. If you back those out, we are about flat year-over-year on profit. Thank you.
Thank you very much. My second question, about the U.S. segment. Q3, core operating income, JPY 12.4 billion up to JPY 14.1 billion. There is an increase in profit level and margin improving from 14.2% to 15.7%. From Q3 to Q4, there has been this improvement in the U.S. Could you please explain about this improvement in a bit more detail? This is my second question about the U.S.
This is Alan Draper. I will take that question. Overall, with the U.S. business, there is a couple factors. One is they have been maintaining price actions and the overall underlying costs have been slowing down a bit or moderating. So they are getting benefit with higher pricing and less costs and lower costs as we go along. While there is still inflation, it is certainly not to the levels that we saw three, six, and nine months ago. The primary drivers are related to maintaining price with the moderating costs.
Thank you very much. My third and last question is about capital investment, CapEx. The fiscal year that just ended, on an annual basis, I think you mentioned about JPY 140 billion was the full year CapEx. But I think actuality, compared with forecast JPY 140 billion, I think actual was JPY 120 billion. Please refer to any delays and how much CapEx are you expecting for this fiscal year, FYE 2025. If you can comment by business segment, if there are any trends by segment, please comment on them as well.
Concerning CapEx, the actual CapEx was below the plan. That is correct.
I had a discussion about details with the CFO the other day, and the U.S. large capital investment project is. There is a timing difference of this to the next fiscal year, and there were some orders that we could not take, and as a result, CapEx is lower than originally planned. However, there are some CapEx projects that postponed from last fiscal year to this fiscal year, and this means that there are some projects that we are likely to receive orders for this year. I would like to call upon Alan to explain the numbers later on. But we are expecting an increase in CapEx this fiscal year. Alan, if you could please explain in more detail.
Thank you, Hamada-san. This is Alan. Overall, we are expecting CapEx next year to be probably about JPY 165 billion. Overall, some carryover from last year, as Hamada-san mentioned, and then obviously, we are still having an uptick in spending. So, probably around JPY 165 billion or maybe just a little bit higher than that, but right in that range. Thank you.
Thank you very much.
Thank you. Thank you very much for the questions. BofA Securities, Mr. Enomoto, please.
BofA Securities, Enomoto. I have three questions as well. FYE March 2025, the new year's volume forecast, the sales will exceed 3.6%. Is that due to volume increase or price hike? Could you give us a sense? That is question number one.
Thank you for the question. By each of those respective categories and depending on the customer profile, volumes are different. It is difficult to say in a simple way, but roughly speaking, we do not expect a big volume increase. For existing customers, the volume increase is not as much. That said, electronics volume will recover, and this is primarily in Europe as a new business or cultivating new users. Medical and healthcare volume will increase. For existing customers, I would say at the outset, due to geopolitical issues impacting on, and we had a huge concern on it. But in any business areas, we do not expect a huge decline. They are slightly lower or flat. There are some other business expecting a recovery. More in details, Alan, if you have any further supplemental comment, please.
It is Alan. As Hamada-san mentioned, certain markets and segments may have some negative volumes. But in total for each segment, we are not providing budget detail level by segment. But we do see positive volume contributions for each overall segment. While there is some puts and takes by market within a business, we are expecting positive contribution from all segments on a volume perspective.
Just one supplement. The pricing. The price revision, if necessary, we will do. We will take price action, but utility cost, that is the biggest impacting factor for us. The power rate trend, depending on the country, situation is different. No huge spike is anticipated in any region. Rather than taking pricing action, we will ensure the price for the purpose of ensuring stable supply because now there are some other factors of the labor cost increase and so forth, other than the utility cost. Taking into consideration of those, then we maintain the price or offer some price hike. That's all. Thank you.
Thank you very much. The second question is also related to pricing. The Japanese price hike has been announced since February, so what is the progress so far?
The price hike in Japan, primarily for cylinder gas. This has been executed. For the market needing helium, putting aside helium, we are proposing a price hike for cylinder gas. Basically, price hike action has been initiated since Q4 last year, but the result will come out from April onward. Honestly speaking, we don't see much contribution due to price hike yet. That's all. Thank you.
Last question, also on price. In Europe, in Q4, pricing trend, could you share with us?
Energy price has been going down in Europe as well. On the other hand, non-energy dependent and the price hike might have been executed. What has been the trend of the prices in Europe? The details, I don't have the data with me, so I will hand over to Alan for the details. Not just in Europe, but in the U.S. as well. There are some, the pass-through mechanisms incorporated in the contract. When the utility cost has been gone down or up, then those are passed on into the price. Depending on the market in Europe, it's difficult to tell the details. Due to the cost pass-through mechanism, there are some products' price being decreased due to the utility cost and so forth. Mostly, the price has been maintained. That's my interpretation.
But depending on the region and depending on the type of gas, there are some variations. If Alan can supplement, please.
Hi, this is Alan. As Hamada-san mentioned, contractually in U.S. and Europe and places in Asia as well, we have GDP or inflation factors that will have adjustments on our contract. So those continue no matter what the situation is. We follow the contracts from that perspective. That will continue forward. When it comes to how did Europe do, they had basically low single-digit pricing in the fourth quarter. So they are still maintaining some price year-over-year. And then also, as Hamada-san mentioned, have significant pass-through and surcharge reduction because the costs have been moderating. Thank you.
Understood. Thank you very much.
Thank you very much for your question. Next, UBS Securities, Omura-san.
This is Omura from UBS Securities. Can you hear me?
Yes, we can hear you.
Thank you. First, about the capital investment backlog. JPY 170 billion is the backlog written in the presentation material. And what percentage of this would be project backlogs that constantly generate cash flow? Thank you very much.
I am trying to look up, and if Mr. Kajiyama or Mr. Draper has the numbers, please explain. Your question is about CapEx. A lot of the CapEx plans are over the long term. Rather than one-off projects, in a lot of our CapEx plans, we are expecting to recover costs. We are expecting a payback. I do not have the specific percentage in mind, so if either Kajiyama-san or Alan has the numbers, please.
This is Alan Draper. Overall, when you look at the projects that we have in this list, it is all projects that are over JPY 500 million. We do have a conglomeration or aggregation of projects that I will say are growth projects that are cost reduction projects, replacement projects. We do not have the detail to provide the exact cash generating, but cash generation is not just revenue, it is also reduction of cost. But it is a combination of those details, and we do not have those available, and I do not think we have ever disclosed those. I apologize for not being able to answer more clearly. Thank you.
Mr. Moroishi has a comment.
JPY 170 billion out of this capital investment backlog, almost all are capital investment by the company that generates revenue. I am not sure if I answered your question accurately or correctly, but after completion of all our projects, we are expecting either revenue or profit. That is how the company understands all of our CapEx projects to be.
Number two, Mr. Hamada, at the outset, you mentioned that you try to fit in the gap between the company's understanding and the stakeholders' understanding as much as possible, and you try to utilize feedback from stakeholders and corporate management as much as possible. What are some of the main gaps between understanding between the company and stakeholders, and how do you intend to utilize the feedback from the stakeholders in your corporate management going forward? Could you please explain in a bit more detail?
Alan Draper was the person who communicated most with the stakeholders, so I would like to call upon Alan to explain as well. There was not necessarily a gap between our understanding and the stakeholders' understanding. We are working on operational excellence to try to maximize revenue. In carbon neutrality, we are working on various initiatives. Considering our main business, gas, there is oxygen, nitrogen, and argon, the gas products. This is well understood by many investors. In order to supply gas, what are we doing? In order to supply gas, what kind of cost reduction do we have to conduct? This kind of explanation was not made in detail from the company. So we received questions as to what kind of efforts we are making in this regard.
We explained what we are doing to improve operational excellence and what initiatives we are taking for productivity initiatives. Through this explanation, we were able to discover that we have to explain in this much detail. We are trying to implement various initiatives, and it was not that there was a major change in our initiative or the direction that we are heading towards, but in order for us to be understood better by stakeholders, we discovered that we have to explain in more detail. Alan?
Thank you Hamada-san. This is Alan. Overall, some of the things that we have heard from investors over the last several years, one is in regard to backlog. We want to be able to be more transparent in our spend, what our backlog is. That is something that was introduced as a result of investor interest and investors sending the message that more information is wanted. In addition, we have been working hard at coming up with additional variance reporting similar to our competitors. Therefore, we can dissect the total group by sales volumes versus currency, versus pass-through, versus price. That is something I am starting to refer to and communicate on these calls when you ask questions about price. That is another item that was really requested by investors. We listen to investor requests. Those are two examples.
The other items that have also been asked, we've heard comments about equity compensation. Right now, we do not have an equity compensation program. It is something we would like to introduce, but we obviously have to have the Board of Directors of the Compensation Committee to be engaged in that. But it is something we have heard from investors, and we like the idea, and we would like to proceed with that. So that is another example. Maybe the last one that we hear about is we do not have a lot of specialists. We have a lot of generalists, and we probably need to expand our specialist area. For example, someone who is a specialist in taxes, we have to look at. Maybe a global CIO is something we have to go towards. These are some of the additional things that we have heard from investors.
We have also wanted to do them ourselves, and we are looking into doing those in the future. These are some of the ideas and communication we have had with investors. Thank you.
Thank you very much. By the way, about shareholder return, what kind of discussions did you have with stakeholders about shareholder return, and what conclusion did you have?
There were no particular numerical requests from stakeholders with regards to shareholder return. But we are continuously mentioning that investment and return will have to be well-balanced. We have to repay our debt, and we have to be able to strike the best balance. In addition, dividend payment amount, we have to disclose the numbers as specifically as possible. At least I have not heard of any specific shareholder return, a numerical request from investors. But here again, Alan has been communicating more, so if you know something.
No, this is Alan. I do not have anything to add. It was more of a discussion on trying to tie executive compensation to equity performance and shareholder returns. We have not touched on anything in specifics, but it is something that we are interested in and we would like to pursue in the future. Thank you.
Well, thank you very much.
Thank you for the questions. Next, Daiwa Securities. Ikeda-san, please.
I am Ikeda from Daiwa Securities. I just have one question for confirmation. On page eight, financial KPI to be enhanced for the higher level. What sort of concrete target, and what level is defined as high? Maybe you can touch upon that the next weeks in the meeting.
Thank you for the question. As for the concrete figures, we are not ready to mention, but we have a rough picture. There are some items which are not hitting the target, especially concerning profitability-related indicators. We aim to achieve those indicators. Core OI, how to proceed. We are not planning the review of MTP. In a coming year or two, our forecast is considered by the finance and the corporate planning. Alan, could you comment on that?
Yes. This is Alan. Overall, we are still focusing, as Hamada-san mentioned, on the EBITDA margin target, for example. I think our target across the group was to have above 17% EBITDA margin. We are not there yet. We are still pushing on companies to make sure they improve their margins, whether that be through pricing actions, productivity, cost reduction. We will continue to target that one. For example, EBITDA, we are still fighting and pushing towards our midterm plan goal that we set out two years ago. That is an example. Core OI and obviously EBITDA quantity is well above where we expected, but we are still working on that quality of earnings. That is an area that we are going to still work on and target, but we will provide a little bit more detail on the next meeting on the 22nd. Thank you.
Thank you.
Thank you very much for your questions. Next, CLSA Securities, Yifan .
Yes. Good afternoon. This is Yif an from CLSA, and thank you much for taking my question. I have two questions in hand. First, congratulations on your delivery of solid results. My first question is regarding the semiconductor gases, because we would expect a recovery in the semiconductor gas demand. Could you elaborate more on your growth in this area? Is there any kind of applications in DRAM as well as the HBM applications? That's about it.
Thank you very much. Semiconductor material gas, there are various kinds of semiconductor material gases, and NSHD is not supplying all types of gases, but particularly memory related NAND, DRAM. There are large users in that industry, and the production volume for these kinds of semiconductor material gases are likely to recover significantly. However, as of now, have we seen a robust recovery? Not yet. From the end of last year, we've been discussing about when we can see recovery, not only within our company, but including experts as well. But gradually, the timing of recovery is being delayed. In our company, when are we going to see recovery in numbers, and when can we recover to below the decline? We have to wait until this year or the beginning of next year to clearly see when we can see a full-fledged recovery.
Therefore, we do not expect a significant contribution this fiscal year. A third or a quarter, we do expect recovery, but not full-fledged recovery. Various new types of gases are being requested. Diborane, B2H6, for example, has been a very important semiconductor material gas that's been used from before, as well as etching-related gas in the 2 nm or 7 nm. They are now taken for granted, but highly integrated semiconductor related gases, we are seeing an increase in demand here. I'm not sure whether I can call this a gas, but various materials using a lithography device as well as equipment that we're offering as well. Here we are expecting earlier recovery than recovery for semiconductor related gases.
Thank you much. Could I have a rough idea of what is the breakdown of your applications? Could you say about, let's say 30% is logic and 70% is for memory, and within memory is about half is DRAM or NAND? Could we say that or not? Thank you.
It's a very difficult question. As I briefly mentioned before, memory related because of a customer situation, I cannot give you a breakdown of memory or NAND or DRAM, but gas demand is extremely high for memory related. I have 40 years experience, but I'm not an expert. I think about 70% is for a memory related gas. I think about 70% of semiconductor memory related gas is memory related. Other than that, there's gas used for highly integrated semiconductors, and there are also highly special materials that are not gas. We have just started to offer these equipments. Not so much time has passed since they were developed, but we do have those products as well. In terms of price, they might be a significant impact, but in terms of volume, memory accounts for a very large portion of our semiconductor business.
And memory and logic, semiconductors used for automobiles, for example, has not dropped so much. But memory as a whole is declining, so that impacted our company's performance as well. That's the sense I have. Thank you.
Thank you. My second question comes to your relationship with Mitsubishi Chemical. I think it's very sensitive and very difficult question, but could you give us a little color because your market cap is about 50% higher than your parent company. Is there any kind of request from your parent company to help them or any kind of things you can do to contribute to growth or any potential changes according to future prospect? That's it. Thank you.
Yes, it is true that market cap at NSHD is higher than our parent company, but the relationship between us and Mitsubishi Chemical is based on a contract. Just because there is reversal in the market cap, the relationship is not to be impacted. I think you are aware very well of the fact that NSHD is making a significant contribution in terms of revenue. Our main business is industrial gas, and the industrial gas performance is at a very high level. We have been able to increase price. We are working on operational excellence. Because of these reasons, we have been able to generate very solid revenue. This strong performance, of course, will be returned to Mitsubishi Chemical. We would like to continue our effort, nothing less than that. We are not considering a change in relationship between NSHD and Mitsubishi Chemical. Thank you.
Thank you much. Very helpful. That is it.
Thank you all very much for your questions. In the interest of time and the questions that we could not take, we would like to respond to it on one-on-one basis. With this, we would like to conclude our fourth quarter FYE 2024 earnings call. The content of today's conference call will be posted on the IR website based on the recorded data. Thank you very much for taking time out of your busy schedules to participate in today's conference call and for your many questions.