It's now the scheduled time. We will begin The Kansai Electric Power Company fiscal 2025 financial report and fiscal 2026 Management Plan investor briefing. Please allow me to introduce our participants. Mr. Mori, CEO.
This is Mori. Thank you very much.
Mr. Tanaka, Executive Vice President.
My name is Tanaka. Thank you very much.
Mr. Kikuoka, Executive Officer, Office of Accounting and Finance.
Hello. Thank you.
First, CEO Mori will give his presentation first.
I'm going to start my presentation. This is Mori. Thank you very much for joining us today for our company briefing. Yesterday, we announced our results for fiscal year 2025. We posted consolidated revenue of JPY 4 trillion, JPY 56.6 billion, and recurring profit of JPY 518.5 billion. This represents a decrease in both revenue and profit from FY 2024. For FY 2025, the dividend remains unchanged from the revised forecast announced at the second quarter. We will pay an annual dividend of JPY 75 per share. Looking ahead to fiscal year 2026, we expect a recurring profit of JPY 290 billion. This represents a decrease of JPY 228.5 billion. The main factors for profit declines are foreign exchange movement, fuel price fluctuations, lower nuclear capacity factor, and higher costs. These include inflation-driven expenses and increased maintenance and construction costs. Although earnings conditions remain challenging, we will continue steady investment.
This includes maintenance investment for safe and stable supply and disciplined growth investment for the future. For FY 2026, we plan an annual dividend of JPY 80 per share. This is an increase of JPY 5 from FY 2025. Last October, we presented the status of our new management plan. Since then, we have engaged in dialogue with shareholders and investors, incorporating the feedback we received with further discussions. Yesterday, we announced Kansai Electric Power Group, Management Plan 2026. Looking towards 2040, our group aims to prioritize safety above all, lead Japan's energy sector, and go beyond Kansai Electric Power to provide a vital platform for a sustainable society. The environment surrounding us is changing rapidly. Geopolitical risks, inflation, rising interest rates, and population decline are progressing simultaneously.
At the same time, DX and AI are transforming industries. Power demand is also likely to increase over the medium to long term.
In such an era, a vital platform for sustainable society is essential to support Japan's growth and people's daily lives. At the core of it is energy. While decarbonization remains a major trend, we believe that energy security, stable and secure supply, is now more critical than ever. While achieving S+3E simultaneously is a fundamental prerequisite, elevating its delivery to meet the demand will support Japan's sustainable growth. In addition to energy and transmission distribution, we will expand into ICT, real estate, and new businesses to provide a vital platform for sustainable society. Beyond the Kansai and electric power, we will deliver new value to customers and society in a timely manner. As one group, we will advance the strengthened KX Kanden Transformation toward 2040 and realize our vision for 2040. We will implement disciplined investments totaling JPY 15 trillion on a cumulative basis by 2040.
Across the group, we aim to secure a ROIC WACC spread of 100 to 150 basis points. We will also take immediate action to strengthen balance sheet management, human capital, and supply chains. The next three years are period to accelerate growth towards our vision. Continuous investment is essential for businesses that provide a vital platform for sustainable society. While building new facilities takes time, 2040 is not a distant future. Although earnings conditions remain challenging, from where we are, we will, with a long-term perspective, steadily move forward with investments for safe and stable supply, as well as disciplined growth investments. For that, we will generate over JPY 380 billion in cash through asset recycling, including the divestment of our shareholdings. This will enable us to balance investments and shareholder returns.
From FY 2026, we will revise our shareholder return policy, where we will target the consolidated payout ratio over 25%-35%, and to maintain or increase dividends. More than JPY 270 billion is to be returned over the next three years. We aim to achieve key targets, including ROE of over 8% on a three-year average. Together with our diverse stakeholders, we will create new value, share empathy and growth, and achieve sustainable enhancement of corporate value. That concludes my presentation.
Next, Mr. Kikuoka, General Manager of Accounting, will explain the details of the financial results. Please refer to the materials in front of you or the projector.
This is Kikuoka. I will provide supplementary explanations regarding fiscal 2025 fiscal results. Please go to page four. We have generally achieved the financial targets for fiscal 2025 set out in our midterm management plan. Page five. The projected figures for fiscal 2026, based on earnings forecasts for each of the financial goals outlined in the Management Plan 2026, are shown in the table below. Please go to page eight. Track record of growth investments for fiscal 2025 totaled approximately JPY 185 billion. Although the actual results fell short of projected JPY 300 billion, this was the result of thoroughly reviewing each project and making investment decisions with the aim of achieving the expected returns. Please go to page 14. These are major factors for fiscal 2025. Retail electricity sales volume amounted to 116.3 billion kilowatt hour, an increase of 800 million kilowatt hours.
Electricity sales volume to other companies decreased by 4.6 billion kilowatt hour. Nuclear capacity factor decreased by 4.4% to 84.1%. Two lines below is Japan CIF crude oil price, which decreased by $11.0 per barrel to $71.4 per barrel. Exchange rate was JPY 151 to a dollar, appreciation of JPY 2. Please go to page 15. Ordinary profit by segment increased year-on-year on all segments except the energy segment. I will explain only about the energy segment on the next page. Please go to page 16. Profit decreased by JPY 33.9 billion, year-on-year to JPY 377.3 billion for energy segment. This is due to negative impact resulting from a decline in nuclear capacity factor and increases in other expenses and maintenance costs, despite the positive impact of increased profits from lower fuel prices. Please go to page 22. This shows the financial forecasts.
Major factors on fuel prices incorporate the situation in the Middle East. Page 23. We expect consolidated ordinary profit for fiscal 2026 to be JPY 290 billion, a decrease of JPY 228.5 billion. The main factors affecting this are decrease in nuclear capacity factor due to prolonged large-scale maintenance work. Increase in fuel costs due to the Middle East situation. The third is due to factors such as inflation and an increase in maintenance work. We anticipate an increase in corporate maintenance costs in energy and T&D segments. While the situation in the Middle East remains unpredictable, if fuel prices rise more than anticipated, our fiscal year 2026 results will be further impacted by timeline-related losses. We will therefore closely monitor the situation and update our outlook as necessary. This concludes my part.
Thank you. Next, Executive Vice President Tanaka will explain the Management Plan 2026. Please take a look at the Kansai Electric Power Group, Management Plan 2026 or the projector in the front.
I'm Tanaka. I will provide additional details on the Management Plan 2026. Page 24. This page shows the cumulative capital allocation from fiscal 2026 to 2028. In 2040, this is placed as a milestone. This is not the endpoint. This is a vision we have towards 2040, and there's no time to wait when it comes to investment for advanced KX. Kanden Transformation toward 2040. We'd like to grow together with the Japanese industry. We are serious. Therefore, please allow us to accelerate investments so that we can grow alongside Japanese industry. To that end, of course, we will pursue upside in the operating cash flow. On top of that, we plan to generate cash through asset replacement and steadily execute a total of JPY 2.5 trillion of investments over three years.
JPY 1.5 trillion for maintenance investments to ensure safe and stable supply, and JPY 1.0 trillion for growth investments. Naturally, we have no intention to make investments without spread. We want to secure appropriate level of spread. Therefore, we would like to make disciplined investment that carefully assess profitability and business risks. We need to make investment to be able to secure this level of spread. As for our shareholder returns in the coming three years, we would like to provide shareholder returns of at least JPY 270 billion over the next three years, and will strive to maintain or increase dividends. Now, please go to page 25. This is about asset recycling initiatives. We cannot be optimistic, therefore, we will do asset recycling and generate cash. This is how we want to go about it.
In our real estate business, I talked about this in the IR Day last December. We would like to increase the proportion of assets subject to asset recycling, and aim to recycle more than JPY 550 billion in assets over the next three years. We are thinking overseas 50 and others, we do believe that we will be able to achieve that. Homes, JPY 300 billion. On the 27th, on Monday, we announced a notice of tendering shares and the tender offer for own shares by Kinden Corporation. This was a homework for us that we had held. We have been talking about this constantly, and we have made this announcement. For the shares we own, we will look at the market situation in the coming three years. We plan to divest at least JPY 380 billion, including Kinden shares this time.
Please go to page 26. This shows the illustrative impact of growth investment. I believe you can see the differences in the characteristics of each business, particularly the time it takes for profits to materialize. In domestic energy sector, where projects have long durations, it takes 20 years or so to recover. There's real estate and ICT below, where you can recover in a short period of time. By combining them, we would like to achieve growth. Furthermore, for domestic energy sector, whose duration is long, we would like to choose the appropriate financing. Instead of just focusing on corporate financing, we will be engaged in joint development and capital recycling to accelerate profit generation and improve capital efficiency. This was a short presentation, but this is all from me.
That concludes our explanation. We will now take questions. First, we will take questions from participants in the room, and then from those joining via Zoom. When asking a question, please first state your company name and your name. Now, we would like to take questions from participants at the venue. Can you raise your hand? Shinya, please.
Thank you for the explanation. I am Shinya of Mizuho Securities. I have two or three questions.
Please. One by one.
On page five of the financial results presentation, you are showing your guidance for this fiscal year and your management plan, KPI. The president has been saying the three years is going to be a challenging period, and you have been repeating that. You have been giving us some level of warning. In terms of recurring ordinary income, the numbers look more challenged than what I had expected.
For the net profit and ROE of 8% and more, by looking at, I think that you are expecting to book the sum of the profit from the sales of assets to achieve a net profit. In terms of ordinary profit, the target seems to be rather challenging. After adjustment of time lag, your profit is going to be lower on a three-year average. I would like to ask what your assumption is and background is. Toward the later part of the management plan, outside of the non-energy businesses or for real estate and ICT, you are showing some aggressive, ambitious target for profit. For international real estate and communication, you are showing us an ambitious profit target. It seems as if you are taking a rather cautious approach for your energy business and your power generation and the other sales, and T&D.
By looking at the ROIC target, I don't think your target is that bad. For the next three years, mainly in your energy business, I get the impression you are expecting a rather challenging business environment. I think you do have some assumptions for the capacity, nuclear capacity factor too. Can you share what your thoughts are?
Thank you for the question. Yes, as you mentioned, I have been saying we will be facing some more challenges in our businesses.
This time, if we are going to put that in our language, this comes to the guidance we are showing you now. If I look at the details of various factors, we could not really. Naturally, we came to this kind of conclusion, of course. I personally wanted to show higher profit target, but as we are seeing the decline in nuclear capacity factor, and we are seeing the increase in the energy cost now, and with the higher inflation maintenance kind of works we are implementing now, the costs for them are having more negative impact on profit than we had initially expected. Including those factors, we are now showing you this outlook. However, we will be taking necessary measures to achieve growth in the future.
Even though we will try to make our business structure more lean, we will be focusing more on balance sheet, and we will be focusing on generating more cash. We will do our best to make improvement as much as possible. As time goes by looking at what kind of progress we will see, if there are revisions or changes needed, we will adjust our plans. As of now, with certain assumptions, we are showing you this outlook.
I can add some more information about some of the numbers. Can you look at page 23? This is a comparison against 2025. As shown here, from 2026 over the next three years, as we will have the seven nuclear reactors, we will try to improve nuclear capacity factor to improve our profitability.
We will implement the work for the next three years, we will have a concentration of the maintenance work. Therefore, the foreign exchange adjustment prices, it is still uncertain what will happen to the Middle Eastern situation. Until the fuel cost stabilizes, JPY 66 billion for FY 2026, we will need to assume that kind of impact. Once it stabilizes, most of that will be seen in time lag, we should be able to collect that in FY 2027. Other than that, as Mori-san mentioned, there will be an increase in other cost items and the maintenance-related cost. As you can imagine, we are seeing impact from inflation. As for our nuclear business, the maintenance work will be a rather long period. As we implement the third maintenance work, we are going to enhance our maintenance.
There will be an increase in the volume of maintenance work. For our thermal plants, for coal and LNG thermal plants, in order to avoid long-term operation shutdown, we are also going to enhance our maintenance work too. As of these cost increases, of course, there will be some impact from inflation, but we are going to make sure that there will be enough maintenance work done over the next three years. For our T&D business, including our expenses, there will be some impact from higher inflation. There will be a replacement of a tower. When we were achieving high economic growth, there was a concentration of construction, there will be a certain level of CapEx included there. We will just make a steady progress to implement these plans. Those are all included in our CapEx plans.
My second question is as you are going to face some difficulty over the next three years, that means, when do you think will be the time where you can pursue to improve your profit or grow your profit? I think you will be preparing yourselves to improve your profitability later on, and there will be a JPY 2.5 trillion of investment, including replacement and growth investment altogether. Including the returns coming from those investments, you will be going back to your profitability and try to further improve your profitability with investment. When do you think that can happen? On page 25, your Management Plan, I think Tanaka-san had explained about this. The profitability and the returns from the investment in each sector, I think you are giving us some hint of what kind of returns you are expecting.
Beyond the medium-term plan in 2028 or 2029 or 2030, with the higher capacity utilization, you are going to see an increase in the profit. In the early 2030s, are you expecting to benefit from the returns from the investment? Is that the kind of timeframe you have in mind? When do you or does Mori-san think when you can achieve the growth in your profit?
Thank you for the question. For the next three years, in terms of the profit, the numbers will look quite challenging. If we look at the numbers, they remain sluggish. We call it a plateau situation internally. We may say these numbers are not meeting your expectations, but beyond the next three years, we will start to generate more return with better turnover. As for large-scale power generation investment, that will take place further out in the future.
There will be some of the investment that can generate more profit before that. We will start to make investment for those over the next three years. There are so many uncertain factors, the next three years can be the only visibility we can show. Beyond the next three years, we are expecting to present some returns from this investment. From the past, everybody has been asking us what our normalized profit level is. Our intention is to bring our profit level back to a normalized level that should happen over the next three years.
Thank you. My third question is about the dividend and shareholder returns. I understand the profit situation is challenging, but as of your dividend, you may send us a clear message, and you are expecting to increase your dividend per share.
Do I understand you're more catered toward increasing your dividend? You are saying you will either maintain or increase dividend, but what is your intention?
Yes. What you said is correct. The profit outlook we can show is as it is. In order to achieve our vision for the future, and as we try to get understanding from our shareholders of what we are going to do to achieve that, now we are going to increase our dividend per share to JPY 80. We think it's appropriate to increase our dividend per share to JPY 80. There are different perspectives, as of our dividend policy, we have been presenting our policies, and if we think about our policy, we would like to show JPY 80 per share to be a start line.
Next, Yamazaki-san, please.
My name is Yamazaki from Nomura Securities. I have two questions I would like to ask you. First, the investment timing. This time, you are planning to make JPY 1 trillion of investment for growth. Is this evenly distributed, or is there going to be more weight on the latter years? Is it going to increase year after year? Also, the asset replacement initiative. You will be taking initiatives here to generate more cash. What is the timing you are assuming? Asset replacement, asset recycle, you will be doing that in the beginning and then generate cash and then make investments later. That is what I assume, but how should I think about the timing? This is my first question.
I would like to give a response. As for the timing or the schedule of investment, the forecast of investment, already for thermal power replacement, this is a large-scale investment that is required. We have already started taking initiatives here. We are doing this already in Nanko. After that, there will be another replacement. Large-scale growth investment will start one by one. Nuclear power, as of now, we need to change the steamer. We are doing a major investment. This is a maintenance investment that we need. This is a current need. Going forward, the investment in power source, we have multiple ones coming up. That is what we are assuming. Therefore, in that sense, it is very big in the beginning, too, but it will increase, and that trend will continue.
As for asset recycle, it is not a question of which comes first, but at each timing, we will do what we can. We will capture the best timing to do the asset recycle. There is a Kinden case as well this time. Including this, we will take the opportunity. It is not that we have the order in place already in our mind, but we will take the opportunity as they arise.
As for the investment amount, it is a significant amount. Thinking about gas turbine alone, it is like for multiple hundreds of billions of yen. With a difference in a few months, it could go into the next fiscal year or so. That has happened in the past as well. It is not something that we can control in a stable manner. There is inflation as well.
We are thinking three to four years time span. Otherwise, it is very difficult. It is difficult for us to say specifically which year we will be making investment. As for our overseas energy business, there is bidding and it is a few tens of billions of yen. We have no intention to not be able to secure spread. Of course, there have been cases where we had to give up participating, and that may happen in the future as well. I think it is very difficult for us to be able to control cash every year for something like policy shareholding. If we are to negotiate or discuss with the counterpart, or even if we are not, we keep our shareholders that own within the three years. This is where we have better control.
Debt financing is a significant amount as shown in the chart, that may be erasing everything. This is my answer, but did this answer your question?
In terms of the level for the coming three years, growth, investment, maintenance investment, there's not much fluctuation between the three different years. We are assuming a similar level of investments for the coming three years, roughly.
My second question is, Shinya-san just asked the question, expenses and maintenance costs are increasing. Putting aside maintenance, there's impact coming from inflation, I think. It's the same for every company. Against such a backdrop, passing on the price, what are the measures you are going to take? In some of the companies, they are doing it in a different form, but they're reviewing the electricity fee, they are trying to cover that inflation with that. If the profitability is challenging in the coming three years, maybe you need to take such actions. What is your thought on the inflation? Also, this is an issue that has existed from before, but the uranium situation. Because of that, the regulatory price ceiling, as a result, every few years, some issue like this happens. What are your thoughts?
Maybe you need to make improvements or revise prices. What is your thought on this topic?
Impact of inflation. First of all, we need to analyze the impact of inflation. We have a rough image, but we need to understand much more in detail to be able to decide what we can do. We'd like to continue to reduce costs with whatever we can. Also, the services we are offering, in many ways, including value add, by delivering the value to customers, we will be the one to be chosen by customers. I think it's important for us to create such a cycle. We do believe that we will be able to increase profit as a result. Price hike. This is a regulated price. I understand that this is being deliberated in the national committee. Of course, demand is very important, but putting that aside, this temporary measure, by when this price hike should be implemented?
This should continue to be deliberated with the liberalization. The system is established, and this price is remaining still. At some point in time, discussion should be held thoroughly, and the policy should be decided by the government, I think, at some point in time.
Thank you very much. I understood.
Next, please.
Thank you. Nishikawa of Daiwa Securities, asking two questions. My question is extension of what Yamazaki-san mentioned. I understand there's a regulated charges, and you're not able to increase the price for low voltage. But for ultra-high voltage, Kyushu Electric Power is already increasing it. Because you have the high mix of the nuclear power, that's the situation with the Kyushu nuclear power, and you're also facing inflation. Including the standard menu, I do understand you are planning to increase the prices for the high voltage or the ultra-high voltage, the charges, to improve your margin. I should not be using the word the price increases, but rebalancing the other charges for the high voltage and ultra-high voltage. What kind of measures are you expecting to implement, and what kind of improvement can I expect?
I talked about the Kyushu Electric Power, but when we look at the total electric power and Chubu Electric Power, they are also talking about the shrinkage of a slight time lag on top of the high voltage and the ultra-high voltage. Because we are talking about slight time lag, we cannot ignore it, because it should have certain impact to your accounting numbers. The time lag to pass through the fuel surcharges adjustment. Are you thinking of revising that?
Thank you. For liberated the prices, each EPCO companies are developing the schemes so that they can address the changes of the business environment. I understand that. How we are going to set or liberate the price, we do need to have a good way to think about those prices. We cannot really specify what directions we will head to.
I think it's important, as we will monitor what the other EPCO companies do, we will compare where we stand, and we will try to determine what kind of choices we should take. Please allow me, I cannot say when and what we will do.
My other question is the ROE of 8% that we are showing for your Management Plan. Can you tell me why you set that price, and how committed you are? You are now saying 8% of ROE or more for three-year average. Why did you determine 8% should be the three-year average? What kind of discussion did you have? You are saying the three-year average of 8% or more. Are you saying after three years, the average should be 8%, or are you aiming to achieve more than 8% every year?
On a cumulative basis, if you are not able to achieve 8% ROE because of your profit level, by looking at your shareholder return policy, I don't think you will have other options to improve your ROE. Should I understand that you are going to implement some other capital, the measures or policies, and that you are committed to achieve 8% ROE as a three-year average?
For our target, if you are asking me if this is a committed target, as we are facing various uncertainties, so many uncertain factors, I cannot say we are committed to achieve this target. What we are saying is this is an aimed target. We will take on our challenges to get there. We wanted to present our intention with this target. Including our capital policies, we will try to improve our profit first to achieve our ROE target.
That will be the basic principle. We will always consider taking some kind of other measures in our capital policy to improve our ROE.
When we think about the next three years, I said that we only have intention to accelerate our investment, and we will sell our Kinden shares and strategic shareholdings. Even with that, we needed to accelerate our investment. On top of that, we don't think there will be a case that we will lose our debt capacity. We are not going to think about the changing our equity side. If we don't have any opportunities to make investment, and then we will think about what we need to do, because we need to be aware of our share price, too.
The fact that we prepared this plan this time, with the investment we will implement, we are going to achieve growth in the future. By lifting our profit, we aim to achieve ROE of 8%. You are asking me, 'Why 8%?' I thought 8% will be the minimum level that everybody or investors and shareholders can be satisfied. This is the kind of discussions we had.
Thank you very much.
Any other questions? Kamichika. Kamichika-san, please.
Hello. My name is Kamichika from SMBC Nikko. I have two questions. First, about the profit for during the three years. I would like to deep dive into this. Profit-wise, you mentioned it's in a plateau, on the other hand, you would like to aim for higher, and you also mentioned that. What kind of upside can we expect from the capital market? Could you elaborate on this? From before, rebalancing is an option, maybe. Other than that, what kind of potential upside could there be? This is my first question. On top of that, related to this, ROE 8%, in order to achieve this, also net profit JPY 270 billion in average. Looking at equity capital, equity ratio, maybe your ROE is not the level you can achieve, I think. Could you explain this?
First of all, basically, we want to improve our profitability. This is something we have been doing, and this will become more important going forward. First, what we can do right away is to reduce cost and improve efficiency of our business operation. We'd like to be able to generate higher profits. As was mentioned earlier, the passing on the cost increase to the price, this is not something we are thinking of. Rather than that, we would like to make efforts ourselves to improve profitability. The specifics, could you add anything?
After calculation, maybe it's not sufficient. I understand what you're saying. We understand that. Still, we'd like to aim for ROE 8%. We'd like to accumulate profits to be able to achieve ROE of 8%. Nishikawa-san's question earlier, or it's related to what President Mori has mentioned. In the coming three years, we don't have the intention to stay in a plateau and just sit and wait. T&D, ICT, real estate, energy, all the businesses for the investors as well as our debt investors as well, we'd like to make the businesses investable. That's what we are keeping in mind. Based on that concept, we'd like to take action. This is the prerequisite for growth, I think. This is abstract answer, and it's very difficult for me to say anything concrete, but we'd like to make our business investable. This is our intention.
Thank you. I have one more question. This is about the forecast for next year, page 23 of financial results. JPY -16 billion decrease in electricity sales. Could you explain about this? It's negative, so maybe competition is severe, but in the previous page, so total electricity sales is expected to increase. What is the breakdown of JPY -16 billion? How should I understand the image of the breakdown?
I would like to talk about the numbers. As Kamichika-san mentioned, page 22. Please take a look at page 22. Retail is -2 . Impact of temperature, fiscal 2025, comparing to that, it is - 1.4 billion kilowatt hour decline. Increase due to customer acquisition, it is positive, increase by 1.5 billion. Also inspection time lag, JPY - 200 million, that is the result. That is the intention. Also sales to other companies, it is + 108. It is a significant increase. We have discussed about this internally, but it is difficult to explain the details because of competition. JEPX transaction value is expected to increase going forward, and that is where the increase is coming from. In terms of profit and loss, page 23, retail decline in hour, that is generating impact.
Thank you. Understood.
Are there any other questions?
I am from Morgan Stanley MUFG . I have three questions. For 2040, just like what the energy agency plan shows, I do not think it is trustworthy because you cannot really foresee what will happen by 2040. I understand it is the same situation for you. I did not expect this Management Plan to be such a long duration period. What we need is to see what your vision is for 2030, rather. You are now saying you are in the plateau situation. If we assume the plateau situation will continue for three years beyond the plateau, after you are normalized, the profit level going down, and without your growth investment, you can expect your profit to go back. If you say your profit will be in the plateau situation for three years.
By 2030, I understand there will be several years where you will need to implement some invest works at the nuclear power plant. If you are showing us what your assumption will be for 2030, and if you can present your expected ROE for 2030, I will have a better understanding of what I am about to ask. You are saying next several years, you're going to face challenges as you are in the plateau, and you said 15 years later you are going to improve your profit. I don't think that is trustworthy or that's meaningful.
If we have a vision for 2030, we will be sharing that today, but after going through various internal discussions, and we also discussed what we are going to achieve, and then we are presenting what we have concluded. As we look at what we will do in the future, we decided to show what our vision for 2040 will be. If you are not satisfied with that, we can only share what our outlook is for the next three years.
I don't think that's sufficient. Because you are now in the plateau situation, and we don't really know what will happen after that. We are not sure if you're okay. If you're going to see the recovery after you get out of the plateau, you are not saying at what level of the increase you are going to see, and you are saying that is the right way of presenting your outlook.
I'm not saying this is right.
Can you show the number by the time you announce your first half result? It should be your task to do your analysis, okay? As a company, you should be discussing information. You should be sharing what your results of the analysis is for investors. It's not really a task of the sell side analysts.
As Ogino-san said, what you are saying and what other investors and shareholders are saying, really, they are meaningful to us. We do listen to what everybody is saying.
What I am asking is, please show us as a reference what your outlook for 2030 is, and what you are going to do to get there over the next three years. That is my first request.
The second part of the question is your outlook for the next three years. In your Management Plan, you said you are going to use your cash for investment and the shareholdings and the Kinden share.
Even without your growth investment, these are things that you should be doing. That should be the message of the equity market. I get the impression you are going to do this because you are going to implement the growth investment. Even without the growth investment, the equity market thinks that you should do that because there could be an issue of a parent and subsidiary at the listed companies. For the next three years, can you share what your assumption is for the next three years? Especially ours. For the next three years What is your assumption? In case of a three-year medium-term plan, if you assume crude oil price to be $70, or if you can share the assumption for foreign exchanges.
If you are going to share your outlook for next three years, not the average, but I will appreciate if you can show us in breakdown. On average, if average is going to be JPY 780 billion and at this time, the recurring profit will be at JPY 220 billion. This year it's going to be JPY 340 billion, and the average will be JPY 270 billion. It seems like that you will see your ordinary profit to decline over time. Because you are in the plateau situation, this is the kind of image we're going to show. That's okay. For the next three years, against this platform, plateau situation, as you implement certain growth investment, under normal situation, you will see your recurring ordinary income to decline. You will be making effort to achieve certain growth.
Apart from the rebalancing, I would like to hear what you're going to do to improve your ordinary income level for the next three years. I would like to receive here your assumptions and the sensitivity for three years and for this fiscal year. My third question, I don't really want to get into details, but for energy business, for power generation and retail, I would like to see the breakdown what the situation is for each businesses, either on the power generation side or on the retail side. What kind of challenges you are identifying, and what kind of measures you are taking to improve that. I want to see that. I understand core business of energy is important for you. For power generation and retail, I would like to see more the quantitative data for that.
Okay, for assumption, we can share some assumptions. From secretariat, we can communicate what the assumption is.
We understand under the Iranian situation over the next three years. On the note says we are not including the Iranian situation or the situation in the Middle East. Without that, we are assuming some of the assumptions.
Is that the kind of document that you can share on the website?
No, we can only share it on Q&A. I don't really want to share this information to all the non-Japanese investors from me.
Can you share that information on the website?
No. We are able to share the information. If necessary, we can provide the information through separate individual communication. For power generation and the retail business breakdown. We understand we should be aware of that perspective, too. Internally, we are taking those approach, implementing our businesses.
For our results for FY 2025 and our forecast for 2026, internally, we are doing analysis of what kind of progresses we are making. How much we can disclose is something we need to discuss. We do have our internal analysis already.
Are there any other questions? Okay, the third row, the person sitting in the middle in the third row.
Thank you for the briefing. My name is Tadaka. Two questions. First, your capital equity ratio. In fiscal 2026, you are forecasting 37% equity ratio. Related to that, the midterm plan, when I look at the numbers, net profit, forecast, and assuming the debt, I believe the capital equity ratio is expected to increase. From mid-30%, there might be some deviation and difference. How are you going to control your equity? You have described about doing buyback as well. Are you going to take a more aggressive measures?
First of all, for this question, for equity ratio, we have a relatively high equity ratio, and this is to prepare for future investments. Whether it will be maintained at a high level? We don't.
That might not be the case. Naturally, buyback, it's not that we are eliminating the possibility of buyback. This is something we are thinking of as one of the options. As we have been mentioning from before, we have a significant amount of investment for growth and maintenance. We will use both equity and debt to make investments. That is our stance.
Thank you. My second question is related to page 24 of the midterm plan. This capital allocation chart, operating cash flow, as it recycled, this is cash in, cash out is shareholder returns. Based on that, passing on the cost increase and profitability increase upside. Upside from the cash out to the shareholder returns. Is that the right way to look at things?
For each. Higher or it might be blurry at the bottom, growth investment maintenance investment, we are assuming JPY 1.5 trillion, JPY 1 trillion. As the bar graph is made blurry, it's not that there's already a lineup of growth investments and that we have things decided already. Each, there might be some changes. Some might increase or decrease for each one of them. It's not necessarily the case that operating cash flow increase will lead to increase in shareholder returns.
We have discussed about sharing the details of everything. JPY 270 billion or more of shareholder returns, it is described in the second page, and we want to make efforts to increase shareholder returns. Operating cash flow, when it increases, would it be reflected straight away into shareholder returns? I would think I want to reduce debt, because the free cash flow is very bad. We need to strike a balance.
Thank you very much.
Do we have any other questions from participants at the venue? We are going to take questions from participants on Zoom. Andrew San of QIA.
read.
Excellent. A couple of questions. The first, slide 22 of the annual results. I just wondered, how have you managed to reduce your earning sensitivity to changes in the oil price? Do those assumptions still hold even in such a volatile market as today? I think it's JPY 0.2 billion earnings impact per dollar. Is that still valid even with oil at $100 per barrel?
The Kikuoka will be answering to your question. The impact from this, when we see the fuel cost increase, with the time lag, there will be a fuel adjustment, and we do the calculation based on the two factors. As we are showing that we believe that this can be the sensitivity we can achieve. Therefore, at this moment, if I can add some information, even though we have seen a deterioration of the situation in Middle East in early March, in the month of February and March, if we take the average of the future price, we use that as the annual assumption. To answer your question, going forward, if the situation continues to deteriorate or the deteriorated situation prolongs, negative impact of JPY 0.2 billion per can be adjusted or changed going forward. Andrew-san, did I answer your question?
Yes.
It was just following on that. Are you now much more hedged than before? Because the impact from change in oil prices is quite significant over the past few years.
Yes, I would like to answer your question. How much we hedge. We do not have the answer to give you the details, but because we have the fuel adjustment system, for the fuel required for our power generation, we are not making a major change in our policy to change our hedging.
Some follow-up questions related to page 26. Just looking at the returns from the period over the next 10 years. What was the thought process behind the allocation into battery storage services and why not more in this area?
For each of the businesses, the amount of investment, allocation, the policy of allocation. We don't really start our process by thinking about the allocation, but we will try to identify the investment opportunity which will allow us to achieve the growth. Over the next three years, we came to the conclusion this will be the amount of investment for each region. It's not like we prioritize at a certain business segment, but in order to maximize our profit, we determine what the growth investment opportunities will be.
If I can add some more. When we determine the allocation, that is a critical part of our management. Over the last several years before we prepared this plan, we have been focusing on our discussion.
Mori-san said profit is of course what we need to achieve, we also need to consider what the spread will be at the total group level, what the level of spread we can achieve at the ROIC level or ROE level. We have gone through the various discussions on what spread we can achieve by using a project financing or a co-development project scheme. Basically, we are showing the ROIC number as the ROIC we will achieve by just engaging in our business on our own. Obviously, we can sell our asset to REIT, or they will take various actions, and we will make necessary adjustment to achieve our target.
Mori is answering to your question. I said that profit is important, but as Tanaka mentioned, we need to evaluate our returns from various other measures. On page 45 of the appendix.
The policy of the allocation, Tanaka-san always said we will just thoroughly and aggressively discuss. We did have very detailed discussions. We will not simply look at the ROIC and WACC, but we will look at the expected growth and the business-related risks and how much time we require to generate the return. By looking at the various aspects, we will also determine what investment should be prioritized, and we will need to continue to brush up these other plans. We understand that's important.
Thanks.
Andrew-san?
One final question. Just in relation to those investment targets, to what extent do they include new nuclear and new transmission investment, or is that additional and very much dependent on the returns?
Yes, your understanding is correct. It is included.
Okay. Thank you very much. Congratulations, Tanaka-san, on your promotion.
There seems to be no more questions from anybody on Zoom or in the venue. Therefore, with this, we would like to close the briefing for today. Thank you very much.