We have now reached the scheduled time, so we will now begin The Kansai Electric Power Company Fiscal 2026, the Second Quarter Results Briefing. First, allow me to introduce our participants. Mr. Mori, Representative Executive Officer, President. Mr. Tanaka, Executive Vice President. Mr. Kikuoka, Executive Officer, Office of Accounting and Finance. President Mori will now deliver the opening remarks.
I am Mori. Thank you very much for your participation in our earnings call today despite your busy schedule. I would like to take a seat. I would like to explain our fiscal 2026 second quarter results and progress of our Management Plan 2026, which we announced in April this year. Yesterday, we announced the financial results for the second quarter of fiscal 2026. Consolidated net sales were JPY 2 trillion 235.1 billion. Consolidated ordinary profit were JPY 111.5 billion.
It is an increase in revenue and decrease in profits YoY. In the first half of the fiscal year, profits declined due to rising fuel costs, the time lag before these costs are reflected in electricity rates, and a decrease in the nuclear capacity factor, among other factors. Looking ahead to the full fiscal year, while we expect to reach a certain level of clarity regarding the scheduled inspection process for nuclear power plants and anticipate increased profits resulting from the revision of metering charges, inflation and rising interest rates are continuing, and market condition, including the situation in the Middle East, exchange rates and fuel prices remain uncertain. Therefore, it is difficult to predict the exact impact of these factors. Reflecting this situation, we decided to maintain the initial forecast of JPY 290 billion, which we announced at the beginning of the fiscal year.
With regard to the dividend forecast, we will maintain the figures announced at the beginning of the fiscal year, an interim dividend of JPY 40 per share, an annual dividend forecast of JPY 80. The details of the financial results will be explained later by Mr. Kikuoka. At our group, we announced Kansai Electric Power Group Management Plan 2026 in April this year. As our vision for 2040, we aim to remain a corporate group that prioritizes safety above all else, leads Japan's energy, and provides a resilient social infrastructure that extends beyond the Kansai region and the electric power industry. Over the past six months, initiatives outlined in our management plan have been making steady progress. In light of rising costs due to inflation and other factors, we have revised metering charges and the standard pricing plans for the extra high voltage and high voltage contracts.
We are also proceeding with the divestment of shareholdings and asset recycling in our real estate business. We will enhance our ability to generate profits and cash flow and use these resources to invest in future growth. We are steadily proceeding with maintenance investments to ensure a safe and stable supply. At the same time, regarding growth investments, we are carefully assessing the future prospects and profitability of our businesses and promoting disciplined investment with a focus on securing the ROIC-WACC spread. Continuous investment is essential for businesses that provide a robust social infrastructure. To ensure we can continue to make these investments, we will enhance our business's profitability and strengthen our financial foundation. We also aim to be a company that investors can trust to entrust their funds over the long term.
The three-year period of the Management Plan is a time to accelerate our progress toward realizing our vision. Moving forward, the entire group will work together to implement the initiatives outlined in the Management Plan, and we will not be content with merely meeting the profit and ROIC targets set forth in the plan, but pursue upside. We view dialogue with the market as an integral part of our management. We take the feedback we receive from our investors seriously and use it to refine our own thinking and incorporate it in our management decisions and actions. We look forward to continuing to carefully share information about our group's initiatives and engage in ongoing dialogue with all of you. Thank you very much for your attention today. That is all from me.
Now, we will have Mr. Kikuoka, Executive Officer, Office of Accounting and Finance, explain the details of the financial results. Please take a look at the presentation material you have or the screen, please.
I am Kikuoka. I will now provide supplementary explanations of our fiscal year 2026 second quarter financial results following the presentation material. First, please turn to page 4. It is the progress. In the second quarter of this fiscal year, revenue increased while profit decreased. Consolidated net sales rose by JPY 226.9 billion to JPY 2 trillion 235.1 billion, partially due to higher electricity sales revenue. Consolidated ordinary profit fell by JPY 203.4 billion to JPY 111.5 billion due to factors including increased fuel costs arising from the Middle East situation and the lower nuclear capacity factor. Although this was a challenging set of results, with ordinary profit declined by approximately JPY 200 billion YoY, we recorded an extraordinary gain of JPY 105 billion from the sales of Kinden shares.
As a result, we were able to limit the decline in net profit to approximately JPY 50 billion. We have made no changes to the fiscal year 2026 earnings forecast or dividend forecast announced in April. Please turn to page 6. For the second quarter of FY 2026, ordinary profit was JPY 52.2 billion in the Energy segment, JPY 16.5 billion in the Transmission & Distribution segment, JPY 21.6 billion in the Information & Communication Technology segment, and JPY 24.4 billion in the Real Estate segment, for a total of JPY 111.5 billion. We will continue working on to achieve both our earnings forecast and the three-year average profit level presented in the Management Plan. Please turn to page 7. This shows our investment progress under Management Plan 2026.
For maintenance investment aimed at ensuring safe and stable electricity supply, we have invested approximately JPY 180 billion through the second quarter, against our three-year outlook of JPY 1.5 trillion. For growth investment, we have invested approximately JPY 190 billion through the second quarter, against our three-year outlook of JPY 1 trillion. We will continue to carefully evaluate each project and pursue investments that contribute to growth. Please turn to page 8. This also shows asset recycling progress under Management Plan 2026. We have carried out approximately JPY 90 billion in asset recycling through asset turnover in the real estate business, as well as approximately JPY 230 billion through measures including the sales of Kinden shares. We will continue to review our asset holdings on an ongoing basis and recycle assets at appropriate times.
Please turn to page 9. This page presents our major initiatives from August through October of this year. Please look at page 10. As Mr. Mori has already briefly covered this page, I will omit the explanation. Please turn to page 11. An offshore wind power project in which we began participating in 2022, and which was one of the largest generation capacities in Germany, has commenced commercial operations. In addition, a new dedicated coal carrier, the Maizuru Kazenomai, has been completed. It will transport fuel to our Maizuru Power Station. By introducing this dedicated coal carrier, we will secure stability, cost efficiency, and flexibility in fuel transportation, thereby supporting the safe and stable supply of electricity. From the third quarter onward, we will steadily advance initiatives to enhance corporate value. Please turn to page 13. This is our consolidated financial highlights.
I have already explained the income and expenses shown in the upper half of the page. Please look at the table in the lower half. At the end of the second quarter, interest-bearing debt stood at JPY 4 trillion 319.5 billion, an increase of JPY 52.9 billion from the end of the previous fiscal year. The equity ratio was 36.3%. Please turn to page 14 for major factors. Total electricity sales volume was 81.9 billion kilowatt-hours, an increase of 5.6 billion kilowatt-hours YoY. Of this, retail electricity sales volume increased by 1.4 billion kilowatt-hours, partially due to an increase of the demand. Electricity sales to other companies increased by 4.2 billion kilowatt-hours, partially due to higher volumes of bilateral wholesale sales. The nuclear capacity factor was 62.9%, down 14.5 percentage points YoY. CIF Japan crude oil price was $108.1 , up $34.4.
Exchange rate was JPY 160 to the dollar, representing a JPY 14 depreciation of the yen. Please turn to page 15. It is an overview of results by segment. The decline in profit in the energy business accounted for the majority of the JPY 203.4 billion YoY decrease in consolidated ordinary profit. I will explain the details on the following pages. Please turn to page 16. This is about the Energy segment, where profit declined by JPY 189.1 billion. I will explain the waterfall chart from left to right. The orange bar on the far left shows an increase of JPY 3 billion from electricity sales due to factors including higher electricity sales volume. Next to the right, the lower nuclear capacity factor had a negative impact of JPY 35 billion.
Compared with the previous fiscal year, longer shutdown periods resulted in negative impact of JPY 15 billion at Mihama, JPY 11 billion at Takahama, and JPY 9 billion at Ohi. Further to the right, changes in exchange rates, fuel prices, and other factors had negative impact of JPY 139 billion. The breakdown is as follows: a positive JPY 20 billion from increased fuel cost adjustment revenue in retail sales and sales to other companies, among other factors; a negative JPY 78 billion from higher fuel cost and other costs; a negative JPY 69 billion from increased procurement costs due to higher JEPX unit price; and negative JPY 10 billion from lower renewable energy subsidies. The impact of the time lag is shown on page 33, but let me explain it verbally.
In the previous year, we recorded a time lag gain of JPY 33 billion, whereas in the current period, we recorded a time lag loss of JPY 87 billion. This represents a negative YoY impact of JPY 120 billion. As for the earnings impact of fuel cost adjustment exceeding the adjustment ceiling, it amounted to JPY 7 billion this period, a reduction of JPY 2 billion from the same period last year. This, therefore, contributed positively to the YoY change in the profit. Supply-demand adjustment transactions contributed to a positive JPY 4 billion, reflecting changes in unit prices caused by fluctuations in fuel markets and other factors, as well as changes in transaction volume. Further to the right, a negative JPY 21 billion under other was mainly attributable to lower water run-off ratio, increased general expenses and interest payments, and lower profits of subsidiaries.
On page 17, the T&D segment, where profit declined by JPY 14.6 billion. In the waterfall chart, the blue bar on the far left shows that the revenue of standard wheeling service declined by JPY 11.6 billion, mainly due to a lower electricity demand in our service area. The two orange bars in the middle represent supply-demand adjustment transactions, which contributed to a positive JPY 3.9 billion, mainly due to lower procurement costs from primary through tertiary balancing capacity, category 1. To the right, others had a negative impact of JPY 6.8 billion, mainly due to higher unit prices for capacity contributions and increases in general expenses and interest payment. Please turn to page 18. ICT segment, where profit declined by JPY 3.9 billion. In our FTTH business, subscriptions to higher-priced ultra-high-speed plans increased.
At the same time, maintenance costs increased as we carried out preventive maintenance on our own facilities. Page 19 covers the Real Estate segment, where profit increased by JPY 12.3 billion, reflecting higher net sales in the residential property development and sales business, driven by progress in the handover of homes and higher average selling prices, among other factors. Page 20 shows the consolidated balance sheet. Asset increased partially due to capital expenditure. Liabilities decreased as reductions in account payable, accrued expenses, and other items more than offset the increases in interest-bearing debt. Net assets increased due to the increase in net income for the first half. Page 22 represents our earnings forecast and dividend forecast for FY 2026. Neither has changed from what we announced in April. That concludes my explanation.
For now, we would like to accommodate questions. First, we would like to ask questions from the people on the venue, and after that, we would like to ask the Zoom participants. If you have any questions, please mention your company name and your name. We would now like to ask questions from the venue. Please raise your hand. Yes, the person in the front row.
Thank you very much for your explanation. I am from Mizuho Securities. My name is Shinya. I have two major questions at a high level. First, electricity charge. You revised the electricity charge. You have the revisions described on slide 10. You have explained this briefly earlier, and as for this point, I would like to ask the President especially. In the original midterm plan, there is inflation, and we understand that the challenging environment because of the inflation in the three years, especially fiscal 2027, is a challenging issue. I understand you had recognized that originally, so this is for next fiscal year. That is my understanding. This time, you have taken measures.
Looking at the wheeling charge, this has to do with the system, but looking at the usage-based fee, towards the second half, I think that you need to go through the negotiation as well, but towards next fiscal year, these measures, pricing measures will be taken. Originally, for the midterm plan, you had already expected challenging situation, and you will be achieving ROE, also including divestiture of assets, and you have taken this measure. Next fiscal year, ordinary profit will be raised, level will be raised. Without depending on asset divestiture, ROE achievement, and the bottom line, you will aim to achieving that. Is that your stance, or what is the relationship between the KPI for the midterm plan and these pricing? I would like to confirm your policy about this. This is my first question. Please.
Okay. I will first answer. I will ask your second question later. I would like to start by answering your first question. Revision of the price. There will be an increase in burden on the customers. As you rightly pointed out, this price hike, we have made an announcement about this, and we will start negotiation. We have started this just recently, very proactively, and the timing of the revision will be different depending on the timing. Many of the customers will be revising in April. With that, the effect of this price hike, how much would be the impact that we will be able to reflect? In fiscal 2027, we will be able to see the impact of this price hike. But we are currently negotiating right now. We have just started.
And with the result, how we will be able to actually raise the price or the number of customers, the volume, we will be able to secure the volume as well. Until after the negotiation, we do not know accurately how much the impact will be, but the timing will be next fiscal year. We will be taking measures to raise the price. And we made a judgment that we will go through this process. You might have thought it is a bit early, but we wanted to prepare quickly and smoothly. Progress of the negotiation and the revision of the price, we would like to come up with a more accurate forecast for next fiscal year after going through this process.
And without asset divestiture, would you be able to achieve the bottom line? I want to confirm this point. Do you expect that net profit to increase with the divestiture of asset, or even without the divestiture of assets, would you be able to achieve that?
Of course, we do believe that that is an important part. That is our view.
Okay, thank you very much. My second question is related to the progress of the short-term results. Q2 results were announced. Slide 6, looking at this bar chart, Q2 cumulative results versus the full year, I think it is a bit distant. Of course, there is a significant impact coming from the time lag in the first half, and also other planned shutdown of the nuclear. The energy business, this progress looks a bit slow. This is the dark blue. This is what I am a bit concerned about. Of course, in the second half, there will be price change. I think that for this fiscal year, the impact would be bigger for the changes in the wheeling charges, but it looks like the progress is a bit slow, especially for energy business. It seems like the progress is a bit slow.
Against that, first half results, how do you evaluate the progress in the first half and towards the second half? Do you have the recovery measures? Or looking at the energy business, page 16, the waterfall chart, of course, I do believe that the impact from the unscheduled suspension of the nuclear plants is incorporated, but it is not that probably not such a big impact that is unexpected. The fuel cost adjustment slide is something that you have already incorporated. It looks like the energy progress is a bit slow, or do you, as a company, feel that it is in line with your plan? Especially, I would like to ask about the Q2 progress of energy business. What is your analysis internally? Would you be able to share that? This is my second question.
I would like to mention about the numbers first. As I mentioned earlier, page 16, please take a look at page 16. As Shinya-san mentioned, it is correct that compared to last fiscal year, the impact of exchange rate and fuel prices, so JPY 137 billion negative, and time lag impact last fiscal year was JPY 33 billion plus. But this year, it is JPY 87 billion negative this fiscal year. This negative JPY 87 billion, out of this JPY 52.2 billion for this fiscal year, if you add that back, then it is around JPY 140 billion level. So, if you think about it that way, there is unscheduled shutdown in nuclear, but going back to page 6, looking at the slowness in progress against the plan, I think you will be able to understand structurally.
Other than that, are there anything that is not going well structurally? Basically, there is no such delays.
As Mr. Kikuoka has mentioned, looking at the Middle East impact, it is pushing up the fuel cost. There is an adjustment system for fuel costs, but it is not enough. That is the major factor. Excluding that, our internal factors, it would be the utilization rate of the nuclear has declined, and also water run-off ratio, this has also declined. These are power source utilization rate that has declined, and those are the main reasons. Numerically, because of these factors, I think it can be explained. Water run-off, it is around JPY 15 billion. It is big impact. From June to August, the water level, the rain was not enough. The impact was around JPY 15 billion. Nuclear, last fiscal year was plus JPY 35 billion. Compared to last year, thinking about the time lag as well, I think, yeah, we can say that it is in line.
Thank you very much. In that sense, the factors are very clear. The negative factors are very clear, you are saying. As a company as a whole, the second half, you will have the revision of the wheeling charges, and taking into consideration all the positives and negatives, it is not that you are in a situation where you need to revise the forecast. That is exactly how it is. Also, we will continue to operate and utilize the facilities we have. Thank you very much. That is all from me.
The person sitting in the front row, please.
Yamazaki of Nomura Securities asking two questions. My first question is about the review of the electricity tariff. For the standard menu, as you are reviewing the standard menu, what is your perception in terms of the impact your action may have to the actions of other competitors? Because for you, you are going to start a negotiation with your customers, so it is the process that has started, so I think it is difficult for you to comment on the progress. But including the impact it may have to the customers' reaction and the reaction of other competitors, can you comment on that?
I would like to answer to the first question. As we directly communicate to our customers, the reaction is quite a mix. Some customers are showing it is going to be a tough negotiation with certain customers. We are going to give a thorough explanation about our situations and our management situation. All we have to do is to continue to give those thorough explanations to our customers. Obviously, some customers are comparing our tariff against tariff of other companies. In that respect, we need to pay attention to what the other companies do. But we are not able to really see what the reaction of other companies are, because we understand it is up to each company to decide on their own pricing strategy.
On top of getting the understanding of our tariff and prices by our customers, we are not simply selling our electricity, but we are going to offer wide range of service menu, and we are going to provide the services that are beneficial to our customers, and we are hoping to enhance the relationship with our customers. That is how we are going to have our customers understand what our strategy is.
Thank you. My second question is also about the tariff again for the regulated prices. I want you to give an explanation again about your policy to revise those prices. I understand it is difficult to review your regulated prices, but now we continue to see the resource prices to stay at the high level, and it seems like the situation is prolonged. What is your perspective on that? Also, you are going to have some assumption of the capacity utilization of your nuclear power plant too. Can you talk about that?
As for the regulated prices, it is the measure, the temporary measure, and we are still not sure how long this temporary measure will last. I understand various discussions are underway, and at the committee, we understand various discussions that are taking place, and I think that is important. As we have been promoting liberalization or deregulation, and now we still have some regulated prices within the retail, and we are hoping the discussions will head to the direction that those regulation will be lifted in the end. For each company, we are facing different situations, but for us, we understand the fully deregulated price is the way it should be.
Talking about the capacity utilization of nuclear and our prices, and also for fuel cost adjustment charges, our changes of our nuclear capacity factor will have some impact to our prices too. We have to do everything we can to maintain the high nuclear capacity factor. For the tariff, we are only hoping that the discussions will take place so that we will head to deregulated prices in the end.
Next, the person sitting in the second.
Could you explain the background? You have not revised the forecast for this fiscal year. There are positives and negatives, and you do believe that JPY 290 billion can be achieved for the full year. But on the other hand, page 22, fuel price, so crude oil price shift is very much apart from the current. If you explain qualitatively alone, it is not very compelling enough. What were the discussions you have had internally? Could you please explain again?
Before Mr. Mori speaks, we did not believe that we can achieve JPY 290 billion, so we did not say that. It is very hard to forecast accurately. Sorry, I spoke before to Mr. Mori. That is all for me.
That is true. Whether we should revise the full-year forecast or not. The nuance is a bit different, where we say, it will be exactly in line with the initial forecast. We are in a challenging situation, and we have had a discussion whether we should revise the forecast or not. Against such a backdrop, we are underperforming, and we have analyzed the reasons. In the second half, how would they be? When we had made assumptions about that, would we be able to achieve above the plan or not? Putting that aside, shall we revise downward? Let us say, for example, by 30%. We had assumed a level where we need to make a downward revision by 30%. We had discussed that. Is there a possibility to come close to that indicator? Probably not the case, and that was the discussion we had right now.
We had, and therefore, looking at the current situation, we made a decision to maintain the forecast.
I would like to continue to what Mr. Mori has mentioned just now. By the end of April, more than you had expected at the end of April, whether we have more a probability to say we will land this much. On a daily basis, things are unclear, and it is not the right timing for us to talk about the revision of the guidance. It will not be such high probability that we will be able to come up with an accurate number, and that is why we had discussed to maintain in the current forecast.
Mr. Kikuoka. I would like to talk about it as well. This is Kikuoka. As Mr. Kamichika mentioned, for the major data, if you can revise them for the Analyst, when you make models, we do understand that it will be very important information for you. Of course, we thought about it, but as of now, it is hard for us to say how it will be. It is very difficult for us to describe anything specific at this moment. Therefore, there is shortage of information, and we regret this as well. But as Mr. Mori has mentioned, for nuclear, Ohi Unit 3 will recover in January, and that is the assumption we have and looked at the forecast, and we will continue to make efforts to improve our profits. We would like to continue with that initiative, so please do understand.
Thank you. The other question I have is about nuclear PPA. I think you have opened a contact, and it hasn't been long since you started. How is the progress, and what is the schedule that you have in mind to lead to agreements and contracts? If you can provide us with any updates, I would appreciate that.
For nuclear PPA, we have made public that we will start that, and we have already started to receive inquiries and hearing needs from the individual customers. Going forward, without taking so much time, how can we deliver? How should we ask for application? Including that, we would like to come up with concrete steps for you to be able to visualize that. We have received inquiries from customers so far, and please allow us some more time. We would like to disclose without taking so much time. We feel that customers are highly interested. Thank you.
Person in the second row, please.
Thank you for the explanation. Nishikawa of Daiwa Securities asking two questions. My first question is about your full-year guidance. You have remained that guidance unchanged. Also, you have been talking about the review of the wheeling charges and the nuclear capacity, the factor. Mr. Tanaka said that there has been some impact from runoff, the ratio. You have not made any changes to JPY 290 billion of the outlook. From your eyes, if there have been any changes compared to the initial forecast at the beginning of the year, can you talk about if there has been any changes? Also, I understand the outlook of the wheeling charges and your nuclear capacity factor, you already have certain outlook of where they are.
Yesterday, Mr. Mori talked about this when we released the press release yesterday. If without the impact from the fuel cost, as there has been suspension Mihama and Ohi, there was some negative impact to our profit. With the negative impact of the water run-off ratio, we also saw some impact. As you mentioned, for wheeling charges, that is having a positive impact to our profit. For ICT and Real Estate, it seems like there, the performance is going to be quite favorable. With everything included, of course, the unexpected suspension of the nuclear plant is something new to me. When we talk about the outlook of fuel cost and the foreign exchanges two or three years ago, right after the war in Ukraine started, we did see a substantial volatility to our profit of like JPY 150 billion up and down.
We had to revise our full-year guidance twice during the fiscal year. With that experiences, we understand that with the higher probability, now we want to communicate what our guidance will be.
For us, we don't really have enough reasons to revise our guidance at this point. Excluding the impact of fuel cost, because unless we exclude those fuel cost, we cannot really talk about our profit, because supply and demand of LNG in the wintertime, now the temperature is dropping, and we need to see the situation in Europe. Depending on supply and demand situation in Europe, we may see a substantial negative impact to our profit if the supply and demand is going to be tight in Europe. If that is going to be the case, as Mr. Tanaka mentioned, we may see a major impact to our profit. We are on alert for that kind of possibility.
Thank you. My second question is similar to what Shinya-san asked. Without sales, divestment of assets, can you reach your net profit target of your medium-term plan? Because I do not think you are going to revise your medium-term target because it is fairly new. When you announced the medium-term plan, I do not think you were expecting to increase your tariff to increase your profit. If you are going to revise your tariff, I think you are going to see more impact to your profit or ROE. I am not sure if it is going to be next spring or after that, but to the equity market, would you consider explaining the impact from the revision of your tariff and what kind of impact that will have to your profit and ROE?
Or, as Shinya-san mentioned, maybe you can also talk about your net profit plans, including the divestment of assets. I was wondering if you are planning to announce your profit target, reflecting the recent actions you have made, including the tariff review.
As of now, there has been no decision on how we are going to announce our target. Beyond our medium-term plan, we may also consider communicating our outlook, including the impact from tariff increases. Also, we are competing with other companies on how we are going to tackle the inflation situation. What kind of the changes we are going to see in terms of the balance against other competitors, and also how we are going to buy and sell our electricity in the retail. There may be some changes to that, because we are now trying something different. Of course, we are trying to improve the situation with what we do, but by looking at the actual results, we will determine what we are going to do next. What we can do, we are already taking those actions.
Thank you. If I can add some information. For electricity tariff, the negotiation for the renewable contracts, that will take place over time. Nishikawa-san, in case of April 2027, I think you are asking about the impact we will see in April 2027. As of April, how confident we are and what kind of outlook we will have, as of April 2027, we would like to consider sharing the information, and we will discuss what kind of the information we can provide.
The person in the front row, please.
Morgan Stanley MUFG, yeah. I have two or maybe three questions. First, I would like to focus on wheeling. Based on the discussion we have had so far, this fiscal year and next fiscal year, there is no hints about the numbers, and that is the current situation. Looking at wheeling, you have the numbers for the year, the adjustment during the year. My question specifically is, the midterm plan, page 6, three-year average, JPY 270 billion, and this year, JPY 290 billion. The impact of time lag is described here as well. If we add that up, that will be JPY 340 billion based on your actual capability. Against that, looking at the midterm plan, there is no level, no discussion included about the wheeling impact and the high voltage.
I understand that you do not know how much the impact will be after you are able to see the results. I hope that it will be visible next year at around this time. I would like to focus on wheeling as of now for the wheeling charges. It is not an impact on the profit, rather the impact on the revenue only. JPY 270 billion is a profit. During the year adjustment of the wheeling charge against the midterm plan, what is the segment profit impact by wheeling? I am assuming that it will have full contribution next fiscal year, and I would very much appreciate it if you could give us any hints about this.
Also, during the second regulatory period. I understand maybe it is difficult for you to come up with a specific number about the impact on the profit next fiscal year coming from wheeling. There is adjustment during the year. I think the profit will be higher compared to the normal period. From the second period, I think it will be a regular period, and therefore, it depends on the business. If at least next fiscal year, after the price hike, I want it to remain high level. That is what I want to see. If possible, the FCF coming from T&D next fiscal year, I hope that you will be able to achieve break-even. That is what I want to see. This is how you should be. That is what I believe. My second question is next fiscal year, within the period adjustment, how much profit increase would there be?
Also, against that level, in the final year of the midterm plan, what is the level, which means the first year of the second adjustment period?
This is related to number. Kikuoka will explain. I will explain. Looking at this fiscal year, from November 1st until March end, JPY 38 billion is the calculation we came up with. If the area changes, it is roughly JPY 38 billion. In 2027, it will be a contribution for a full year, so it will be around JPY 200 billion that we are expecting. For the second regulatory period, Ogino-san is encouraging us so much every time, all the time. Next fiscal year, first half, we will be fighting for that. As for the interest rate, we are able to reflect the interest rate hike very on a timely basis.
This is the result of the discussion of the deliberation committee, so we would like to reflect that. As for the business revenue compared to the current, the in-period adjustment compared to 2026, 2027, we expect it to be higher. This is just an expectation based on the current. Furthermore, there is price increase, inflation, including those. How do we file, and how much shall we file? We will wait till next fiscal year, so please wait a while.
For example, Ogino-san, you mentioned in the past few months, but you mentioned just now as well, five-year. From equity market investors, please achieve break-even. We do understand that. As a person in charge of the group, I am informing and applying pressure, or maybe not really pressure. I am encouraging the people in T&D. With FCF zero, it is not investable for investors. So, we would really like to hear your opinions and receive feedback on this topic.
Thank you very much. I have two more questions. My second question is totally a different topic. I would like to ask about power generation and retail sales. Looking at the energy business for the first half, on slide 16, I would like to ask about this page. Energy business, there is power generation and retail sales. You have, as usual, a very rough calculation. JEPX price has been extremely high. I understand the difficulty you have in retail, but power generation, YoY, I think you should be happy about it. If that is the case, then the superficial decrease in profit is JPY 1,896, but excluding the impact of time lag, I think it should be less.
I think the decrease would be JPY 70 billion-JPY 80 billion decrease. Nuclear capacity has declined, and therefore, negative JPY 35 billion. This is about power generation side. Other than that, the retail, for example, looking at Chubu Electric Power's Miraiz, they are hardly able to generate profit. Looking at power generation, of course, it is pushing down the profit, but because of the JEPX, they have raised it. In that sense, with that background in mind, what is the direction of the profit in the first half? Has it gone up or down, excluding the impacts of those?
Also, for high voltage, and above, that will be retail side, other than that. Power generation, one-to-one negotiation of price hike. JEPX, you cannot do anything because this is the market price. But power generation wholesale price, do you have any pricing policy? If you have any comments, please let us know.
Looking at power generation and retail, it is very important to analyze them separately. Power generation for this fiscal year, nuclear was shut down unexpectedly, and also water run-off ratio has declined. We have increased thermal power usage, and we have procured from the market instead of generating ourselves. For power generation, procuring from the market means increasing burden. It is compressing the profit. It might be because JEPX has gone up significantly, so it might have reversed. Looking at the retail, on the other hand, it is not the whole, but looking at the linkage to the market, we are selling to the market. We have changed that to be linked with the market, so we can hedge a significant portion. It is not that the spread to start with is wide, because electricity retail is not high, but retail is making efforts to secure profits in electricity sales.
As for wholesale, inflation is occurring, and we need to make our business investable. Of course, the T&D business, we record CapEx and maintenance investment, significant amounts required. But power generation side does require a lot of cost. Maintenance cost is impacted significantly by inflation for power generation. Of course, we are earnestly hoping that we will be able to generate profits with the cost increase. This is a must. We must achieve profit. T&D must address inflation. Power generation is very much impacted by inflation. How can we continue with the wholesale JEPX and decide the price? We are influenced very much by the market price. We have a significant increase impact in the past few years, and we need to cut costs in order to absorb that.
My last question is about shareholder returns policy and your financial structure. We have questions earlier in the current midterm plan. Ordinary profit, JPY 270 billion is their target, and I am hoping for an upside, if possible. Based on the way Nishikawa-san put it, extraordinary profit will not change much. If that is the case, then ROE level, 8% might become higher. This is based on the optimism, but looking at equity ratio, 30%, mid-30%, that is the target. First half, 36% is the current equity ratio, and payout ratio, 25%-35%. My ideal would be at around this step next fiscal year, the updated version of the current midterm plan will come out.
At that time, I am looking optimistically, assuming things will improve. Equity ratio, 30%-40%, the middle of 30%-40%, I think that can improve optimistically. If that is the case, then shareholder returns, 25%-35% payout ratio, that probably will not change, but I think you will be ready to do buyback. On the other hand, looking at long-term investment, including new nuclear power plants, rather than three years, maybe you want us to look more long term in the future. That is compelling as well. My question is, wheeling charging and increasing price in high voltage, if things go well, and if there is increase in profit next fiscal year, and you need to update the midterm plan. If your performance is very good, what will be your shareholder returns? If there is anything you can talk about, I would appreciate it.
We have been mentioning from before for dividends, JPY 80 is the starting point. As much as possible, we would like to increase dividends. Our intention has not changed. Against such a backdrop, the current midterm plan, when we announced this plan, I explained this a little bit as well, but the future investment for the power source will become significant. Even right away, we need to start one after another. Nanko, Himeji, we will be doing that one after another. Ahead of that, there is more. We need to make significant investment, and that is the first step. We would like to realize this. Against such a backdrop, how do we think about the shareholder returns? That is the positioning of shareholder returns.
We have long-term view about the investment in power source, and the revenue cap system will change for T&D, and there is not enough T&D infrastructure for the new power sources, and that part of investment will also increase. We have the responsibility to supply, and we believe that is the priority for us.
Thank you very much. Wheeling and high voltage and nuclear capacity rate increase, that is what I am hoping to see in the future. Thank you.
Person in the third row, please.
Iokibe over at JP Morgan, asking two questions. My first question is about the changes of the fuel cost, the impact that will have to your profit. I think that will continue to be a big challenge for you. The possibility of making investment in the upstream, the natural resources to hedge your profit, would you consider that kind of option? I do not think that is included in your investment opportunities that you list. Do you ever consider making that kind of investment in the equity of those upstream energy?
As you said, procurement of fossil fuel. We understand diversifying where we supply is important, where we source is important, and also how we are going to engage with the upstream is also important. For the upstream of the LNG, in the past, we did participate in some of the project, and going forward, we will continue to discuss the opportunities to make those investments. For us, we will try to diversify the LNG procurement contracts we have. We will try to find the optimal combination, more long-term agreement, and the spot market, the procurement, which is what we are doing now, but we will continue to consider that going forward.
My second question is about your real estate business. This year, the performance is quite strong, and for next year and onwards, as we will continue to see the interest rates to go up, and your asset recycling type of business, I think that is going to be a headwind for you, because we understand the real estate price in Tokyo is peaking out. Given that situation, would you consider continuing with your asset recycling business, or if the prices start to fall, would you still be focusing on the asset recycling without paying much attention to the price levels, or would you consider taking a wait-and-see attitude? Maybe that will result in less profit on the single-year basis, but would you make adjustment to your policy?
The latter will be our policy. We are not really assuming the asset recycling to be our business. We think generating cash is important, and continuing to expand our profit is also important. If there are good opportunities to generate profit by asset recycles, we will do that. If it will help us to make our financials more lean, we will take that option. Going forward, if you ask me if we will maintain the same speed, depending on the situation of the real estate market, we will make our own decisions and set our priorities.
For next fiscal year, are you going to see more challenges to come for your real estate business?
The people in charge of real estate business tell me that the market environment is showing some signs of changes, so we are going to take flexible measures if there is going to be any changes to the environment.
If I can add information. Real estate business includes condominiums business. Every year, depending on the sourcing of land every year, there is a certain volatility in each year. Also, the structural impact is a different thing. We will need to look at it from two different perspectives.
Are there any other questions from the venue? Now, we would like to ask for questions for investors on Zoom. Please let us know by using the Raise Hand button. When you are appointed, please turn on the camera and the microphone and start speaking. There seems to be no questions. If there are no more questions, we may end.
Of course, we welcome any additional questions later, but upstream, natural hedging, is there such an option? That was a question earlier. Ogino-san did not mention this up until now, but it will be three years since we raised capital. Buyback, maybe you can think about it. We have not mentioned that before, I think. This is a phrase we heard for the first time, I think. We will think about that as an option. What I want to say is that these opinions we hear today, we will hear them seriously, and we will have a discussion among the management. We are serious about this. I wanted to share this with you.
Are there any other questions? It is a bit early, but we are going to conclude the presentation of the second quarter results of fiscal year 2026. Thank you very much for your participation.