I'm Hosotani, CFO. I will now explain our results for the second quarter of FY 2026, which has just ended. Page 4 summarizes our second quarter results for FY 2026. Exchange rates were JPY 159.4 per US dollar, JPY 183.7 per euro, and JPY 112.2 per Australian dollar. The yen weakened against all three currencies year-on-year. Sales rose 13.6% year-on-year to JPY 1 trillion, 115.5 billion.
Operating income fell 1.2% to JPY 135.1 billion. The operating income ratio fell 1.8 percentage points to 12.1%. Net income rose 13.3% year-on-year to JPY 95.8 billion. Sales reached a record high for the second quarter. Page 5 shows second quarter sales and profits by segment for FY 2026. Construction, mining, and utility equipment sales rose 15.1% year -on -year to JPY 1 trillion, 32.6 billion. Segment profit fell to JPY 114.3 billion.
The segment profit ratio fell 2.2 percentage points to 11.1%. Retail finance sales rose 7.2% year-on-year to JPY 32.7 billion. Segment profit rose 3% to JPY 7.7 billion. Industrial machinery and other sales fell 2.9% year-on-year to JPY 61.6 billion. Segment profit rose 28.4% to JPY 12.1 billion.
Page 6 shows second quarter sales by region for construction, mining, and utility equipment in FY 2026. Sales rose 14.9% year-on-year to JPY 1 trillion, 28.8 billion. Excluding foreign exchange effects, sales rose 5.9%.
The following pages explain regional changes separately for mining and construction equipment. Page 7 shows second quarter mining equipment sales by region within construction, mining, and utility equipment in FY 2026. Mining equipment sales rose 8.5% year-on-year to JPY 502 billion. Excluding foreign exchange effects, sales fell 1.4%.
Sales rose sharply in Latin America, where copper mining demand was firm, and in Africa, where gold mining demand was firm. In Asia, sales fell in Indonesia as coal-related demand remained weak. Sales also fell in Oceania as the replacement demand cycle ran its course. Overall, sales fell excluding foreign exchange effects.
Page 8 shows second quarter construction equipment sales by region within construction, mining, and utility equipment in FY 2026. Construction equipment sales rose 21.9% year-on-year to JPY 526.8 billion.
Excluding foreign exchange effects, sales rose 13.7%. Sales rose in every region except China, including North America, where data center investment drove firm demand, and Latin America, where infrastructure investment supported firm demand. Page 9 summarizes our first half results for FY 2026. Exchange rates were JPY 159 per US dollar, JPY 184.2 per euro, and JPY 112.4 per Australian dollar.
The yen weakened against all three currencies year-on-year. Sales rose 14.1% year-on-year to JPY 2 trillion, 158.6 billion. Operating income rose 3.5% to JPY 286.6 billion. The operating income ratio fell 1.3 percentage points to 13.3%. Net income rose 9.2% to JPY 191.9 billion.
Sales reached a record high for the first half. Page 10 shows the sales and profit for each segment for the first half of FY 2026. Sales of construction, mining, and utility equipment increased by 14.8% year over year to JPY 1 trillion, 999.6 billion. Segment profit rose by 1.0% to JPY 244.5 billion, and segment profit margin decreased by 1.7 percentage points to 12.2%.
Revenue for retail finance increased by 7.3% year-over-year to JPY 65.4 billion, and segment profit went up by 2.9% to JPY 17.4 billion. Revenue in the industrial machinery and other segment rose by 7.1% year-on-year to JPY 114.5 billion. Segment profit was up by 27.0% to JPY 21.1 billion.
Now explain the factors behind the changes in each segment later. Moving on to page 11. This represents the regional sales figures for the construction, mining, and utility equipment segment for the first half of fiscal year 2026.
Sales of construction, mining, and utility equipment increased by 14.8% year-over-year to JPY 1,993.8 billion. Excluding the impact of foreign exchange rates, sales were up by 4.8%. Details on the year-over-year changes by region are provided on the following pages, with breakdown by mining equipment and general construction equipment.
Here on page 12 shows regional sales figures for mining equipment within the construction, mining, and utility equipment segment for the first half of fiscal year 2026. Sales of mining equipment grew 11.0% year-over-year to JPY 964.4 billion. Excluding the impact of foreign exchange rates, sales growth was 0.2%. In Asia, sales fell significantly in Indonesia, where demand for coal-related equipment remained sluggish.
On the other hand, sales were up in Central and South America, where demand for copper mining equipment remained strong, as well as in Africa and North America, where demand for gold mining equipment was robust, resulting in an overall revenue increase. Page 13 represents the regional sales for the general construction equipment within the construction, mining, and utility equipment for the first half of fiscal year 2026.
Sales of the general construction equipment reached JPY 1,029.4 billion, an increase of 18.6% compared to the same period last year. Excluding the impact of foreign exchange rates, sales were up 9.5%. Except Japan and the Middle East, sales increased in all regions such as North America, where demand remained strong, driven by data center investment, and Central and South America, where demand remained strong, supported by infrastructure investment.
Turning to page 14, this demonstrates the factors contributing to the changes in sales and segment profit for the construction, mining, and utility equipment segment in the first half of fiscal year 2026. Sales increased by JPY 257.4 billion year-over-year, driven by foreign exchange gains from the weak yen, higher sales volume, and the positive impact of improved selling prices.
Segment profit increased by JPY 2.5 billion as the positive effects of the weak yen, higher sales volume, and improved selling prices outweighed the negative factors such as rising costs. The segment profit margin decreased by 1.7 percentage points to 12.2%. Additionally, the impact of tariffs for the first half of fiscal year 2026 amounted to a negative JPY 39.7 billion, while refunds totaled JPY 12.8 billion.
A net amount of negative JPY 26.9 billion is included as a negative impact on cost variance. Next, on page 15, shows the status of retail finance for the first half of fiscal year 2026. Assets increased compared to the end of the previous fiscal year due to an increase in new business volume. New financing volume increased year-over-year, primarily due to increased use of financing in North America, Europe, and Africa.
Revenue and segment profit increased by JPY 4.4 billion and JPY 500 million respectively compared to the same period last year, primarily due to the impact of the weak yen and expansion of assets. Page 16 shows you the sales and segment profit figures for the industrial machinery and other segment for the first half of fiscal year 2026. Net sales rose 7.1% year-over-year to JPY 114.5 billion.
Segment profit increased 27.0% to JPY 21.1 billion. The segment profit margin rose 2.9 percentage points to 18.4%. Sales to the automotive industry declined, while sales to the semiconductor industry grew. Overall, both sales and profit increased.
Turning to page 17, it represents the consolidated balance sheet and free cash flow. Total assets amounted to JPY 6,527.2 billion, an increase of JPY 103.2 billion compared to the end of the previous fiscal year, primarily due to an increase in inventory.
Inventory assets totaled JPY 1,694.7 billion, an increase of JPY 92.8 billion. The equity ratio decreased by 1.5 percentage points to 53.2%. The net debt-to-equity ratio stood at 0.31. Free cash flow for the first half of fiscal 2026 resulted in a net inflow of JPY 20.3 billion.
Furthermore, free cash flow for the full fiscal year 2026 is projected to result in a net inflow of JPY 270 billion. The share buyback program approved at the Board of Directors meeting on April 28, 2026, was completed by September 15, 2026, with shares purchased up to the maximum limit of JPY 100 billion. This concludes my presentation. Next, regarding the projections for fiscal 2026, Mr. Hishinuma will explain.
I am Hishinuma, General Manager of the Business Coordination Department. I will now explain our fiscal 2026 outlook and conditions in our main market. Page 19 summarizes our fiscal 2026 business outlook. We are raising our sales and profit forecast from the full-year outlook announced on July 29, reflecting the latest market outlook and actual second quarter exchange rates. We are raising our sales forecast by JPY 148 billion from July to JPY 4,450 billion, up 7.7% year-on-year.
We are raising our operating income forecast by JPY 30 billion to JPY 585 billion, up 3.1%. Our net income forecast is going to be raised by JPY 33 billion to JPY 382 billion, up 1.5%. Reflecting recent price trends, we revised the cost increase from the Middle Eastern situation from JPY 23.2 billion to JPY 21.7 billion. Reflecting the latest developments, this is year-over-year impact.
Reflecting the latest developments, we also revised the cost increase from U.S. tariffs from JPY +25.8 billion- JPY +17.7 billion. We have also revised parts of our demand outlook, which I will explain later.
Our exchange rate assumptions from the third quarter onward are unchanged from July, JPY 150 per US dollar, JPY 174 per euro, and JPY 106 per Australian dollar. Full year averages will be JPY 154.5 per US dollar, JPY 179.1 per euro, and JPY 109.2 per Australian dollar. We expect ROE of 11% for fiscal 2026.
We plan a dividend of JPY 190 per share, unchanged from last year and our July forecast. Including the effect of share buybacks, we expect a consolidated payout ratio of 44.2%. Page 20 shows sales and profit forecasts by segment. For construction, mining, and utility equipment, we expect sales of JPY 4 trillion, 120 billion, up 8.2% year-on-year, and segment profit of JPY 504 billion, up 2.6%.
For retail finance, we expect sales of JPY 129.5 billion, up 2.7% year-on-year, and segment profit of JPY 36.5 billion, down 0.2%. For industrial machinery and others, we expect sales of JPY 257.5 billion, up 7.9% year-on-year, and segment profit of JPY 44 billion, up 16%.
I will explain the drivers of changes in each segment later. Page 21 shows our fiscal 2026 sales forecast by region for construction, mining, and utility equipment. We expect sales of JPY 4 trillion, 92.3 billion, up 7.8% year-on-year.
Excluding foreign exchange effects, we expect growth of 4.4%. The following pages explain regional changes separately for mining and construction equipment. Page 22 shows our fiscal 2026 mining equipment sales forecast by region within construction, mining, and utility equipment.
We expect mining equipment sales to rise 4.8% year-on-year to JPY 1 trillion, 996.7 billion. Lower sales in Asia due to weak coal-related demand and in the Middle East due to regional conditions will be offset by higher sales in Latin America, where copper mining demand is firm, and Africa, where gold mining demand is firm.
Excluding foreign exchange effects, we expect sales to be broadly flat, up 0.9% year-on-year. Page 23 shows our fiscal 2026 construction equipment sales forecast by region within construction, mining, and utility equipment. We expect construction equipment sales of JPY 2 trillion, 95.6 billion, up 10.8% year-on-year. Excluding FX effects, we expect growth of 7.9%.
We expect lower sales in the Middle East due to regional conditions. However, we expect overall year-on-year growth with gains in regions including North America, where data center investment is driving firm demand, and Latin America, where infrastructure investment is supporting firm demand. Page 24 shows actual and projected sales of equipment parts, services, and other items in construction, mining, and utility equipment.
In the second quarter of fiscal 2026, parts sales rose 11.7% year-on-year to JPY 291.1 billion. Total aftermarket sales, including services and other items, accounted for 53% of sales. Excluding foreign exchange effects, total aftermarket sales rose 4.9%.
For fiscal 2026, we expect parts sales of JPY 1,117.7 billion, up 5.9% year-on-year. Total aftermarket sales, including services and other items, should account for 51% of sales. Excluding FX effects, we expect total aftermarket sales to rise 1%.
Page 25 shows the drivers or projected changes in sales and segment profit for construction, mining, and utility equipment. We expect sales to rise JPY 314 billion year-on-year, driven by the weaker yen, higher volume, and improved selling prices. We expect segment profit to rise JPY 12.9 billion as the benefits of the weaker yen, higher volume, and improved selling prices outweigh higher costs and other negative factors.
We expect the segment profit ratio to fall 0.7 percentage points to 12.2%. The fiscal 2026 cost variance includes a negative tariff impact of JPY 44.8 billion and refunds of JPY 27 billion for a net negative impact of JPY 17.7 billion. Page 26 shows the retail finance outlook. We expect assets to rise JPY 40 billion from the previous fiscal year-end due to an increase in new contracts.
We expect new contracts to rise JPY 106.5 billion year-on-year due to greater use of financing in North America, Europe, Oceania, and Africa. We expect sales to rise JPY 3.4 billion year-on-year, mainly due to a larger asset base. We expect segment profit to be broadly flat year-on-year, mainly due to higher costs. We expect ROA to fall 0.1 percentage points year-on-year to 2.3%.
Page 27 shows the sales and segment profit outlook for the industrial machinery and others. We expect sales of JPY 257.5 billion, up 7.9% year-on-year, and a segment profit of JPY 44 billion, up 16%. Sales to the automotive industry are expected to fall, mainly due to lower sales of large presses. Sales to the semiconductor industry should rise as customers increase production. Overall, we expect both sales and profit to increase.
We expect the segment profit ratio to rise 1.2 percentage points to 17.1%. From page 28, I will explain demand trends and the outlook for our seven major products. Demand figures for these seven products include mining equipment. The second quarter FY 2026 figures are preliminary Komatsu estimates.
Second quarter FY 2026 unit demand appears to have risen 6% year-on-year. As in the first quarter, firm demand in North America and Latin America drove overall growth. Recently, demand in Asia, as well as North America and Latin America, has exceeded our initial expectations.
Reflecting these conditions, we have revised our full year FY 2026 demand forecast to growth of 5%-10% year-on-year. Page 29 presents the trends and outlook for demand in the North America market.
Demand billing for the second quarter FY 2026 appears to have increased by 14% year-over-year, driven by data center investment. Demand for rental units rose significantly, while demand from the mining and energy sectors also remained strong. The full-year demand forecast for FY 2026 has been revised from the July projection and is now projected to be 5%-10% higher than the previous year.
While we expect data center investment to continue driving demand, we will also closely monitor the impact of rising energy prices and interest rates on demand. Page 30 covers demand trends and outlook for the European market. Demand in the second quarter of FY 2026 is estimated to have increased by 2% year-on-year. Large-scale infrastructure projects in Germany and the U.K. are driving demand.
While we maintain our full-year demand forecast for now, we will continue to closely monitor future demand trends, including the potential impact of rising interest rates on demand for construction equipment. Page 31 covers demand trends and outlook for the Asian market.
Demand in the second quarter of FY 2026 is estimated to have increased by 8% compared to the same period of the previous year. In Indonesia, demand from the agricultural sector remains solid.
Meanwhile, for mining machinery, although demand rose among certain customers who received additional coal production permits, overall demand remained sluggish due to uncertainty surrounding future production permits. In India, demand for construction machinery has remained robust, supported by public works projects and economic growth.
In other Asian countries, while demand for construction equipment softened in some nations due to the impact of rising energy prices, overall demand remained firm, supported by factors such as public investment. Allowing for these factors, the full-year demand forecast for FY 2026 has been revised from the projection made in July and is now expected to be on par with the previous year's.
Page 32 represents demand trends and outlook for Japanese market. Demand in the second quarter of FY 2026 is estimated to have declined by 2% compared to the same period the previous year. While we maintain our full-year demand forecast, we are currently seeing a recovery in demand both from general customers and the rental sector, supported by factors such as increase in private sector construction investment.
Page 33 presents trends and outlooks for the prices of key minerals that influence the demand for mining equipment. Copper prices remain high, supported by robust demand. Gold, which is currently undergoing temporary correction, continues to hold at a high level from a long-term perspective.
Thermal coal prices for both low-grade, high-grade varieties are currently on an upward trend, probably due to the surge in crude oil prices driven by the situation in the Middle East. We continue to closely monitor future developments. Page 34 shows demand trends for mining equipment.
Demand in the second quarter of FY 2026 is estimated to have increased by 5% versus the same period last year. Demand from copper mines in Central and South America, as well as from gold mines in Africa and North America, has remained robust. Consequently, overall demand for mining equipment is expected to exceed our initial projections.
In light of these developments, we have revised our full-year demand forecast for FY 2026, previously issued in July, to a range of 0% to negative 5% year-on-year. Next, I'll outline some key topics. Page 47. Komatsu and EARTHBRAIN have entered into a strategic partnership covering the Japanese and U.S. markets with AIM Intelligent Machines, a developer of autonomous operation technology for bulldozers and hydraulic excavators.
By integrating construction plans and target terrain data created via Smart Construction within AIM's physical AI platform, the partnership will enable autonomous construction operations. AIM's technology can also be retrofitted onto existing bulldozers and hydraulic excavators.
Moving to page 48. Komatsu has agreed to extend its global partnership with the Atlassian Williams F1 Team. The two companies will further deepen their technical cooperation, with Komatsu engineers providing support for the development of key components to be used in the future Williams F1 cars.
Turning to page 49. Komatsu has launched a PC75-10M0, a 7-ton class hydraulic excavator designed for the Southeast Asia market, which is developed and manufactured by its Indian subsidiary, Komatsu India. This model marks the first time Komatsu India has taken the lead in developing a hydraulic excavator. It leverages the company's development, production, and procurement capabilities in India to meet the specific needs of the Southeast Asia market.
Komatsu is strengthening its ability to flexibly provide products tailored to the needs of customers in each region, and this model was developed as part of that ongoing initiative. Page 50. Komatsu has launched PC200-11M2 and PC210-11M2 hydraulic excavators and has begun their phase out phase introduction into emerging markets, primarily in Asia.
By offering the PC200-11M2, the second model in the CE Series, designed with enhanced cost efficiency for urban civil engineering work, alongside the versatile PC210-11M2, which is suited for a wider range of job sites, Komatsu enables customers to select the model best suited to their specific needs.
Moving on to page 51. in September, Komatsu published its integrated report, Komatsu Report 2026. The report reviews the first year of our mid-term management plan or Strategic Growth Plan, Driving Value with Ambition, and outlines initiatives aimed at enhancing corporate value over the medium to long term, including efforts in automation and remote operation, the application of AI, development of human natural capital. We invite you to take a look. That concludes my presentation.
Now we would like to move on to Q&A. First, we would like to receive questions from the people who are here with us. Maekawa-san from Nomura.
This is Maekawa from Nomura Securities. Thank you very much for the presentation. I have two questions. Regarding your full-year projections and tariff costs that you are anticipating, in your previous plan for the year, you were saying JPY 89.1 billion, which was an increase of JPY 25.8 billion year-on-year.
But this time around, when you look at page 25, it is JPY 44.8 billion. It has been increasing. Of course, sales in North America, including demand, has been revised upwards. I presume that volume is increasing and that is the reason why. Even so, I feel that it is relatively high. Can you talk about the reasons why?
Tariff impact, right? What we have accounted for with respect to tariff impact, where we show the P&L changes for the JPY 44.8 billion, this is before refunds. After refunds, it is JPY 17.7 billion, and JPY 25.8 billion was actually after refunds. The actual net amount of impact has actually gone down. We have accounted for the recent developments, and we have revised the numbers. Tariff impact is actually down on a net basis.
Sorry for that. My second question is also with respect to full-year expectations and selling prices. When you look at the progress of the second quarter, it seems that the profit increase magnitude has been declining compared to the first quarter. For construction equipment in North America, as well as mining in Latin America, as well as Asia, apparently it seems that you have revised up both demand and sales expectations for the three regions.
With inflation still underway, I think you are at a point where you need to continue to raise selling prices. But why is your expectation relatively low, and what are you doing to address this situation?
Hosotani will take your question.
For this fiscal year and the regular price increases, we have accounted for this in our expectation, and there are no changes there. We will continue to engage in regular price increases by region.
On the other hand, as we strive to raise prices when it comes to tariff cost, there are some companies partially that have been including the tariff impact into their selling price increase, which is a North American company. But tax credits with its application, which is mainly for auto industries, there is no need to raise prices any longer, so the magnitude of price increases have been declining.
Compared to July, half of that difference is accounted for by this region. For the rest, although this depends by region, for the regions where interest rates are up, in order to support marketing activities locally, we have been offering incentives and marketing support, which is slightly higher compared to July. Although it varies region by region, the selling price positive impact apparently looks like it is lower than before.
This incentive marketing support, in which regions are you increasing this? Your main markets are North America, Latin America, Indonesia, and Asia. Those regions were a positive. Are you doing this in the Asian regions? Although you have revised up your expectations.
No, for the regions where interest rates are higher, for example, that would be Europe, we have been increasing support by a bit.
Okay. In North America, what about additional price increases? Do you have any intention of doing that?
Originally, we will continue to do the price increases that we were planning for initially. But when it comes to large support, no, we have not been doing anything specific like that.
Thank you.
I will take the next question. Sasaki-san from UBS.
Thank you for your presentations. This is Sasaki from UBS Securities. Thank you for this opportunity. My first question. You showed me the variance. You have the volume and mix gap. Can you show us for the gap and also the product cost? As Maekawa-san's question in the Middle East, and the conflict in the Middle East and so forth had a push impact. But versus the GP, I think the product cost has increased. Why? Thank you.
This is Hosotani speaking. In the first half, well, first half versus the initial plan for fiscal year 2026 first half. In the first half, 1.6 was included. Then mix, well, region and also product were both included, but combine all of them, JPY 11 billion -JPY 12 billion were included. I will explain why and what. In terms of the region versus previous year, Asia declined significantly. Versus world total average, the profitability in Asia was relatively good.
The regions are seen declining. There are some of the regional mix. In terms of the product mix, this is just above our cost. I mean, the sales increased in the first half, but primarily coming from the CE. It is self-evident if you look at the bar graph. The equipment for CE is growing. Parts does growth versus previous year, but equipment growing more than parts.
In terms of the mix, equipment mix is larger. In terms of the product mix, we need to account for the negative factors. That explains the first half and also the production costs. JPY 20.4 billion we are showing right now. Sorry, JPY 46.9 billion. USD are included of the 26.8. So JPY 20 billion some are remainder.
The breakdown of JPY 20 billion, the procurement risk from the Middle East, and this is conventional message we have repeated. This has been included. In terms of the region, there was a flood in Thailand. That was a one-off event and one-off cost was included. Also supplier overseas and claim expense
occurred. That was just, again, one-off and steel material. Versus previous year, the pricing of the steel material ticked up, and this part of the increase is included too. Those are some of the items we should explain for the first half. I guess you asked the question of before your basis.
Full year basis. Now looking at the JPY 21.8 billion. The volume product mix, JPY 20 billion of negative of product mix were included. The same trends goes for Asia, and annualized basis, it declines. That was part of the negative factors from the region.
Other than the regional reason, in the first half, as I said, the overseas suppliers driven warranty related expense, the cost was up. It was included here. Also we needed to respond to the flood in Thailand. Those are one of costs we needed to include. Other major chunks.
In terms of the sales mix, equipment, especially for CE equipment and CE parts mix. In terms of the mix, we are seeing negatives here. Volume increases and then volume mix is included. That is how we can explain this volume mix too. Production costs. The breakdown of that, the US tariffs showing up here on slide.
Others, JPY 34 billion. We originally included the Middle East related expense. This was huge. This was around JPY 13 billion, which was pretty big. Other than that, steel material, copper, aluminum, and these commodity prices are going up. Also this time, semiconductor price tag increased.
From the previous year, semiconductor cost increase was one more item we needed to include. All in all, these are some of the cost increases we are witnessing right now. That is all from me.
Thank you. Then production cost, Middle East impacts and the U.S. tariff costs are decreasing. But other parts and commodity cost increases, those are enormous. Is that what you are saying?
Yes.
Thank you. My second question. In Asia, especially in Indonesia, there is no full recovery yet, but I am not sure where you are at the moment in Indonesian markets. Please keep me updated. Also, what are the dormant ratio and what are the feedbacks or comments you are hearing from the people on the front lines in Indonesia? What does outlook look like? Once again, taking this opportunity, please quantify the outlook and overview of Indonesian market. That was my second question.
This is Hishinuma speaking. First, Indonesian market, right? 4,200, some prices or have been always seen. But rather than that cost, that is one thing we need to highlight here. For coal price, $50 sometime before, but recently $70 was some or the upper $70. So the demand is supposed to go up with the price tag. But as I said from the beginning of the year, production permits for 2025, 800 million tons, but then post Q1, 600 million tons. That was a drop we see.
That was expected to go up to 720 million. This is based on calendar year, and there is just a handful of months to go. So for anywhere that can gain the permits for production, some of the customers are trying to purchase the equipment, so that drives the demand to an extent. Also the commercial stream aligning, that could be some shackles for the businesses, but it started to recede back. So in terms of the mind, I think mindset started to relax.
But the dormant ratio post Q1, it was around 20%. That is how I explained. But as of September, 12%-13%. The dormant ratio dropped that much. So it looks like it is getting better, but we need to really look into the figures or behind those figures because the population units is constant, and then dormant ratio goes down, that means the utilization ratio is supposed to go up. But the population itself declines in some areas.
I am not sure if it will be resold or others, but some are making movements like that. Those developments have been seen, so we need to look into those developments moving forward. Also, coal production permits volume 720 million tons. That is where we expect that to go back. But then, if we turn to 2027 calendar year, at best, I think the volume will be the equivalent level to that. So that warrants our attention.
Okay. Very clear. Thank you.
Thank you for the question. Let's move on to the next one. Isayama-san from Goldman Sachs Securities, please.
Thank you for the presentation. I am Isayama from Goldman Sachs. For North America and construction equipment that you did well on, I would like to ask you a question around it, including some basic questions. You raised your demand outlook, but when you look at monthly numbers, I kind of thought it could be better because you are saying just +5% to 10%. So why is it this low?
Are you just being conservative? Of course, there are various things happening currently, like higher rates and so forth, but I would like to hear from you why you set your projections this way, because I think you could be more confident.
When you compare your sales to demand, it seems that you are performing really well. Are you taking more market share? Is the mix improving? Are you seeing more added value or profitability? Can you talk us through what is happening in North America in detail?
This is Hishinuma. This year it is all about data center investors. That is what we have been communicating with respect to North America this year. For Q1, non-residential, where data centers are included, as well as rental that is driven by this demand, has been strong. That is what we have been saying. Currently, activity around data centers happened quite quickly.
When it comes to non-residential, new original equipment purchases, it is not growing that much. Customers want the equipment to come to their sites as soon as possible. That is why they are preferring to rent the equipment nowadays. In the demand outlook, if you look at the page that I explained, rental has been growing predominantly.
When you talk to customers, it is not as if everyone is saying so, but depending on the customer, they have order backlog in place that is on an annual level. So we believe the strength is likely to continue for a while. We think that looking at results from the first half, the second quarter was +14%, and for the first half it was +15%.
Of course, there are other external factors like what is going to happen to energy prices. I do not want to talk about any political things, but we do have the elections coming up, and therefore we are applying a cautious view leading to these numbers. For sales, we recognize sales based off wholesale to distributors.
Talking about rental that I have been talking about before, we have DORF, which is distributor-owned rental fleet that is counted in market share. The distributors rent equipment that we sell equipment to, but that is not included in share count. So when the rental equipment is replenished, our wholesales will increase.
Thank you. Going back to what you just explained, can we talk about next year? It may be a little bit too early, but when you look at your order backlog, are you expecting that this demand is going to decelerate because of rental?
Or because there is a certain level of backlog, do you think it is likely to continue? It might be too early to ask this question, but people question how long the data center really investments are going to last and so forth. Can you share with us your view?
We have been gathering customer feedback, and obviously there are some bullish people out there, but we are still scrutinizing the details. We are not yet at a point where we can share our outlook for next year.
Second question is with respect to the changes part. You talked about some one-off costs as well as mix. Towards next year, if you can provide us with some food for thought, that would be great. Can you sort things out for us? First, due to the flooding in Thailand, there were some one-offs and also the drop-off in tariff impact.
For Asia, if it is negative this year, is it going to be positive next year? Is North America construction equipment going to continue to grow and serve as a positive next year? I felt in this update in your guidance that a lot of negatives are going to be taken care of during this fiscal year, which may turn positive next fiscal year.
Thank you for the question. This is Hosotani. For this fiscal year and the changes in our P&L, I did explain some one-off expenses. Especially regarding the mix for construction equipment and original equipment sales, it has been growing, which is obviously impacting positively profit growth.
When you analyze the profits, there are some negative impact from mix. Looking out into next year, compared to our assumptions for equipment, including construction equipment, it is a matter of original equipment and parts balance. If the balance changes, that will impact mix as well. Is the mix tentative this year and is going to change next year? That is something I will not be able to talk about today.
Next, with respect to cost, there were some year-specific items, like what we talked about regarding Thailand, as well as there were some quality issues with overseas suppliers that led to higher cost. Also for steel and materials like that, we do expect high levels presumably to continue next year, but obviously there will be some materials where costs go down.
For costs, by aligning together with the production people, we will be focused on reducing cost and controlling cost, which is what we do every year. Obviously, we will be doing this next year as well. That is all for me.
I am so sorry. With copper mines growing, and if the U.S. picks up and Asia bottoms out, I do not think that sounds bad. Are there any concerns, meaning shortage of materials? That is often talked about in other sectors, but are there any negatives that you are anticipating next year?
Related to mining, right? That is your question. Yes, I am thinking that mining will turn positive, and there is no negative catalysts that we should be aware of. Well, yes. For Latin America, it is mainly around copper mines, and it is growing. For Africa, we have gold as well as some copper, which is growing too.
This is in linkage with AI or data centers. Data centers require a lot of power. On top of data centers, these power stations are being built as well. As a result, whether it be electric cables or otherwise, copper demand is heightening. AI, data centers, power infrastructure, and copper demand has been heightening, and we believe this will be ongoing.
For copper, there aren't many factors that may lead to a copper price decline. So copper procurement cost is not that cheap. It really depends on negotiations. Also, semiconductors, demand is extremely high right now, and demand is increasing even when you look at the market from a general level. We are obviously in the same position as an entity that buys copper. We will have to cooperate together with the supplier to try to bring the cost down.
Thank you.
Satoshi Taninaka-san from SMBC Nikko Securities.
This is Satoshi Taninaka from SMBC Nikko Securities. I got two questions. First, North American short-term sales outlook. I will appreciate it if you can drill down a bit more. In reality, ex-FX, what is the growth rate like, sales growth rate? If I do the math, then first half North American sales growth rate was 5% for mining equipment, and second half, negative 6% YoY.
So first half was great, but second half is expected to decline. For CEs, first half, 20% growth for CEs, but negative 1% year-over-year basis in second half. As you have been saying, you try to be cautious probably, but if you look towards second half, it looks like a sales volume decline YoY basis. So whether it is ME or CE, what are the risks you are aware of at the moment?
This is Imayoshi speaking. First, for mining equipment, we are a large client, so obviously there are some ups and downs, which is out of our control. As for CE, I find it difficult to describe.
Well, you are saying that there are a variety of risks.
Yes, including product mix. If we add up everything we know, then this is what it looks like. As we have been explaining, data centers are driving demand, which is so true, and the rental market is taking center stage for driving growth, and everybody's bullish. Yes. But for first half, that's the number we are putting out at the moment.
Okay. My second question. CE sales in Asia was revised upward. I think there could be some implications from the ex-FX sales growth rate was JPY 18.8 billion of revision upward in Asia for CE, and the growth rate was negative 11% to negative 1%, which looks very stable and robust.
You're saying the agricultural sector was robust. So, what's the situation like in Asia? What are the things that are turning around in Asia? If so, the product mix, I think that there could be some positive impacts on product mix. If there is any impacts on the product mix with this upward revision.
This is Hishinuma speaking. First, in Asia, agricultural part, yes, I explained that. But on the other hand, in the mining B50, we need to use B50, as you know, and palm oil was pretty robust and active in the market, and then that drives demand. That's one thing. Second thing, public investment.
The beginning of the fiscal year, public investment budget has been replaced by school food or lunch-related budgets. It's not that the private investment budget is not declining. So including all of that, I think the situation looks a little bit better than what we had anticipated. But in terms of the mix, unfortunately, it's not that profitable mix or is increasing significantly.
Okay. It was clear. Thank you. That's all from me.
Thank you. Next, we would like to take some questions from Zoom.
This is Otake from the Nikkei. Can you hear me?
Yes, we can. Please go ahead.
Thank you for taking my question. My first question is about tariff impact from the U.S. In consideration of the current circumstances, you changed your outlook to JPY 17.7 billion. When you say the current conditions, what do you specifically mean? Going forward, depending on the circumstances, do you feel that you will be able to reduce the impact from tariffs even more? That's my first question.
This is Hishinuma speaking. When we say the current conditions, we do purchase from U.S. suppliers, and we go into detail to negotiate with the importers as well. When you build things up, we see what we have currently. Compared to our initial expectation, due to Section 301, our expectations were too strong or conservative, and after three or six months, we didn't see that much of an impact. Those are the things we have accounted for. That's what I meant.
The supplier thing you talked about and negotiations, if you see more progress, will you be able to mitigate the tariff impact even more?
It's not really like we're going to try to do something more than what we have. It may have been 100%, but we're looking at 5% or 10%. To be honest, I am not engaged in the negotiation process. There may be some adjustments, but I am not sure.
I see. The audio was cut off on my end, so I just wanted to confirm one thing. Regarding demand trends in North America. For data centers, you've been saying the rental segment has been performing well, and you have revised upper outlook for North America when you were talking about demand outlooks by region. Is this demand being driven by rental?
This is Hishinuma speaking. Yes. Basically, it is data centers. In Q1, non-residential and rental was driving the way. From a demand point of view, competitors are carrying DORF in the rental space. That is accounted for in the share count. Demand-wise, the growth was quite substantial.
However, we do not use DORF. In the case distributors are going to do rental, it is being owned by them, and it is not included in the share count. However, we will be able to grow our sales due to wholesales.
That is why there is some contradiction between demand and sales trends. It is not necessarily consistent. We basically sell our products, and our distributors will do rent-to-sell, and they might have been able to make a sale to data center applications. In that case, our non-residential share count will increase. From a retail ratio point of view, the non-residential ratio is drawing close to one half, and that is driven by data center related demand.
I see. One follow-up question I have is earlier you were saying that there are some distributors that have backlog on an annual basis. As you communicate with distributors, are there any cases where inventory levels are trending low? What is the inventory situation?
This is Hishinuma. We are not talking about distributors for order backlog. We are talking about the end user. For distributors, because the rental business is doing well right now, rent-to-sell inventories are being built up, and that is why we are seeing higher sales.
So rental inventories for distributors, is it running low?
No, not really. It is not as if it is running low compared to normal levels.
I see. Thank you very much.
Thank you. Again, participant from zoom, Mr. McDonald from Citi.
Thank you.
Do you hear me speak?
This is McDonald. Yes, I hear you. For the interest of time, I would like to have a first question on the returns to the shareholders. Today, the second upper revision was made, and our level was upward. Upward revision came. It is not substantial. But cash flow was revised upward too for the second time.
But the dividend and the buyback in April, that amount stayed at the same level. But in terms of the shareholder returns policy, yes, I understand. But what kind of messages would you like to convey? Because there are various factors of anxieties, but would you like to do more of the shareholder returns or buyback? Can we expect more down the road?
Imayoshi-san, can you comment on that?
This is Imayoshi speaking. Yes, following Q1, we made a revision upwards in Q2. In Q1, it was more of like the Middle East conflict was incorporated generally, so we try to be updated. Based on that, we needed to revise upward of the performance. It has been six months after initial planning. So we need to be based on the current situation, and the yen gets weaker.
So FX impact was incorporated up to Q2. This growth of the revision itself is not that substantial, but we try to be accurate based on the current market. In terms of the returns to shareholders, as you see here, the level of the dividend, the 40% plus of dividend payout ratio, and that will be 44%. This is within the range of the slight revision. So it is not that we have discussion on the change of the dividend amount itself. Okay.
Can you clarify? FX? FX-wise, spot-wise, the yen gets weaker and there are uncertainties a lot, yes. But probably three months out, slight revision could be possible. I think it is fair to say that we can expect some returns to shareholders at around time. But you are being conservative, and yes, that is the kind of the stance you are taking in general. I understand that, but I think that you can be more proactive.
Imayoshi-san, what do you think?
Well, in terms of the policy for dividend, investor relations department hear a lot of feedbacks from the other shareholders, investors. As you know, McDonald, as we have explained before, we have not changed our stance of Komatsu Group.
As of up to date, it is not that the current conditions significantly altered. Also towards second half and towards fiscal 2027, there are more uncertainties coming along. Putting everything into perspective, we did not change that level. I appreciate if you can understand that.
Okay, a different topic. Recently, Latin America copper mines projects were firm. But mining companies in Latin America talked to me, and August and September, there were heavy rains, and that drops the production activity. There were some accidents because of landslides, and there is some negative news coming in. Do you think it was a one-off? Do you think it was influential for your performance? I would like to clarify if that is true.
Yes, we are aware of those situation. But in terms of business, there has been no material impact. It is not that we have incorporated any of that from Latin America into this guidance. As explained, copper demand is pretty brisk, and also investment activities on the part of clients is expected to be stable for a while.
Okay. Thank you. That is all from me.
So we would like to continue to take questions from the floor. Tai-san from Daiwa Securities, over to you.
This is Tai from Daiwa Securities. This might be a very rough question, but the first one is when you compare Q1 and Q2, and it could be just limited to the CE business, I think profitability went down quite a lot. What caused this decline the most? How should we view this? Q1, Q2, the yen depreciated somewhat, and sales volume increased. So I guess it is mix worsening or material cost increasing. I am not sure. You do not have to walk me through the exact numbers Q1 and Q2, but as a story, volume went up while profitability went down this much because of what? If you can give me a brief answer, that will be helpful. That is my first question.
This is Hosotani. Q1 and Q2 profitability difference. First, as a factor was the way fixed costs came through. On a quarterly basis, beginning of the year, we were not seeing that much development of executing on our budget. But as the year progresses, typically fixed cost increases.
And one more thing specific to the second quarter was the flooding in Thailand, as well as the overseas suppliers' tentative cost burden that happened. So that was an extraordinary item. And not sure if this was in a material, but the refund timing of tariffs. In the first quarter, the amount of refunds were bigger. So in Q2, the amount that impacted a P&L was smaller, which has had a negative impact. So those are the two major factors.
So the impact from Thailand as well as the overseas suppliers, how much was the impact if you combine the two together for the second quarter? It is less than JPY 10 billion. About JPY 9 billion?
Well, it is about JPY 5 billion to be exact.
Okay. I see. For the second half of the year, your plan is that profitability is going to pick up again. So if you add back JPY 5 billion, we should be able to expect profitability improvement from Q2 going into the second half, but material costs are likely to increase. The mix does not seem like it is going to improve right away, and fixed costs are going to be heavier in the second half compared to the first, which means are you all right in profitability improvement in the second half of the year?
Whether we can do it or not, with respect to that, often our company is said to be conservative, but we do put together our plans by looking at the details closely, and we are expecting more volume in the second half of the year compared to the first half. So we should expect profit growth through higher sales volume.
For fixed cost, when you compare the first and second halves, the second half is likely to have a higher fixed cost base. But when you compare sales, second half sales is likely to grow more.
And to be even more specific, for the first half, due to ships and ships not operating in line with schedule, there has been some shipping push outs from the first half into the second half of the year. Our expectation that sales is going to be higher in the second half is backed up by conviction.
Thank you. One more last thing I would like to ask about is FY 2027 and mining demand. How do you project this? Can you say a word on this? For Indonesia, Hishinuma-san spoke about it earlier. If Indonesia were to be flattish for copper or for gold, there are various positives underway.
But for total demand, it has been several years of not so great trends. Commodities have been up, but operational costs have been up as well. It may be because investments are not being made that commodities are up.
Is mining demand going to pick up next year that will lead to better orders and sales? The mix will probably be extremely better, and we should be able to project a brighter next year. Should we be optimistic or not as optimistic and be more prudent?
For the mining majors, as far as we talked to them, for 2026 as well as for 2027, their CapEx plans are not going up or down. We are expecting it to be flattish. We have not accounted for this completely in our plan, but we have started to see orders for 2027 come in by a certain extent, but we are not expecting a big development next year.
Of course, our business plan is going to be compiled from here on, so I cannot talk about the details. But that is the level we are anticipating based off what we have been hearing from them. For underground, with all the products in place, I think you are in a position to be more offensive, but to be more on the offense.
Even if demand were to be like that, is there any additional business you think you could go after or a story like that? It can be. For orders or business negotiations, we continue to have them with customers. The fluctuation in sales by fiscal year tends to be determined by delivery timing.
If we are able to ship during this year, we might end up seeing good results at the end of the year. We may see some push outs into next year, and in that case, it will be recorded as next year's sales. But we are not seeing any changes in environment that is changing the amount of orders we are seeing come in.
Thank you. Anyone from the floor? Morgan Stanley MUFG, Kitaura-san, please.
This is Kitaura from Morgan Stanley MUFG. Thank you for today's presentation. My first question, the mining equipment. I think this might overlap a little bit, but as I hear, the Chinese players are really aggressive in coming to this part of the market.
By commodity, for example, for copper, I think you are strong, seeing no problem. For example, in the first half, in Oceania region, sales in mining equipment dropped. Can you talk a little bit about it? Has it something to do with the competitive landscape and the usage difficulty in raising prices? I appreciate if you can give us update of the mining equipment market.
This is Hishinuma speaking. Well, Oceania was a bit feeble in mining equipment, overlapping a little bit, I just said, but delivery timing and the business negotiation are swaying. Previous year, that was a bumper year. So versus FY 2025, this year was not as great as FY 2025. It is not to say the Oceania market is cooling. No. We are not worried about that market.
Chinese players, people on the front lines are struggling a lot in mining equipment. It is not that there was significant threat from China, but for example, the part of a flat area for coal, then which the dump truck of China started to come in. That is what I started to hear. What about on pricing? Is there any influential impact from China? Well, because the way we are playing the game is a bit different from them.
Okay, my second question. On mining, BB ratio, it started to tick up a bit. In comparison to sales, you said that you expect them to be flattish, but the copper are robust. If you look at the BB ratio, what is the trend like by commodity base? I appreciate if you can disclose those data sets too.
Again, this is Hishinuma speaking. This is the BB ratio showing up on a screen. This is the six months to six months, we try to divide those numbers. For example, when the order coming in great, then BB ratio goes up, and then for a while, that goes to delivery. Even though the order was pretty good and BB ratio goes down. This is kind of repetitive move you are seeing. We are seeing robust, but it started to pick up a bit.
What about by minerals? Set aside Indonesia, what about copper?
Yes, the copper is the most robust one, or gold. These are robust and brisk.
Okay. Thank you.
Thank you. Next from Zoom, Kusunoki-san from Nikkan Kogyo Shimbun.
This is Kusunoki speaking. Can you hear me?
Yes, we can. Please go ahead.
Regarding my first question, it is about interest rates. in September, the BOJ increased rates to 1.25%, and their policy is to continue to hike. For companies, it is likely to lead to higher funding cost. For your company, how you view this impact on the business environment or your performance?
This is Imayoshi speaking. There is not going to be a material impact on our business. As we disclosed on our balance sheet, our liabilities are mostly associated to the retail finance business, and basically, we charge customers based off variable rates. We will need to be watching closely the impact on economies around the world, because when interest rates go up, housing starts tend to decline. Also, it tends to have an impact around infrastructure too.
For Japan, at that magnitude, I do not think it is going to have a material impact, and so far, currently, orders continue to come in. So over the short term, we are not feeling its impact. Of course, over the medium term, we will need to watch closely to discuss about our outlook for next year.
Thank you. Another question I have for you is about cybersecurity. Cyber attacks to companies are intensifying. How do you perceive these trends? Can you share with us your policies around cybersecurity? If you have any priorities you are placing, can you share that with us?
Yes, this is Imayoshi. This is one of our utmost important themes that we are looking at, and we are deploying our resources as well. Fortunately, we have not experienced an incident where we were attacked, and our information was breached.
However, by leveraging AI, attacks are becoming more sophisticated, and they have been evolving. We would like to leverage tools that are available to us that are state-of-the-art so that we can prevent attacks from happening. Thank you.
Okay, we are seeing time is ticking, so the next question will be the final one. Anyone to ask questions? Narita-san from Mizuho Securities.
This is Narita from Mizuho Securities. Just one thing to clarify. The refunds of tariff in first half, JPY 12.8 billion. Q1, JPY 10 some billion, then JPY 3 billion is the only amount we are seeing. That could have impact on Q1 Q comparison. For your basis, JPY 30 billion will be going to JPY 27 billion.
That's declining according to your plan. As you recognize those, do you think those figures will be coming in the second half? Can you clarify and can you confirm those numbers change?
Yes, this is Hosotani speaking. Yes, you are right. On annualized basis, what's impacting P&L JPY 27 some billion. I'm giving you more details here. Annualized basis, refund amount will be larger than this JPY 28 billion some. That's what we are expecting.
Originally, in April, I said that JPY 30 billion of the refunds against which, if we examine the details, then that's the latest amount. JPY 1 billion some will remain as an inventory, and this will have impacts on next year's performance. First-half gap will be coming out in the second half. Does that answer your question?
Yes. Thank you.
Thank you. We would like to now conclude the Q&A session. This concludes Komatsu's fiscal 2026 Q2 results briefing. Ladies and gentlemen, thank you for joining today.