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Operator: We will now begin the financial results briefing for Q1 of the fiscal year ending March 2026. Thank you very much for taking time to join us today. I would now like to introduce today's attendees. Nakajima, Director, Vice President & Executive Officer, Head of Accounting & Treasury Headquarters is present today as a speaker. First, Nakajima will provide an overview of the financial results for Q1 of the fiscal year ending March 2026. Questions and answers will be accepted in batches after Nakajima's explanation. The entire meeting is expected to last approximately 1 hour. The presentation materials are also available on the Tokyo Stock Exchange and Yokogawa Electric's website. We will now begin our presentation.
Michiko Nakajima: I am Nakajima, Vice President & Executive Officer, Head of Accounting & Treasury Headquarters. Thank you for joining us today. I will now explain according to the materials at hand. It is shown on page four of the key documents of this financial statement. Details are explained on the following pages. Let’s start with a summary of our results on page five. Orders received totaled JPY149.1 billion, an increase of JPY1.6 billion, or 1%, excluding the effect of exchange rates. Excluding the effect of exchange rates, sales increased significantly by JPY9.2 billion, or 7.1%, to JPY130.2 billion. Operating profit was JPY16.2 billion, an increase of JPY1.4 billion in nominal terms over the previous year. Orders received increased by JPY2.7 billion, or 18.3% excluding foreign exchange. The yen has appreciated significantly from JPY158.15 against the U.S. dollar in the previous year to JPY144.11 this time, and as shown on the right side of the table, this has been a major factor in the downward pressure on the previous year's results. In spite of this, sales from an abundant backlog of orders have been robust, and after absorbing the impact of foreign exchange rates, we have secured an increase in both sales and profit, even in nominal terms. In addition, while the backlog of orders is steadily increasing, we continue to receive more orders than sales, and as shown in the supplementary materials, the backlog of orders for 1Q ended with more than JPY15 billion in the past three months. While foreign exchange losses were recorded in operating foreign currencies, a decrease in income taxes-deferred resulted in a net income increase of JPY5.1 billion over the previous year. The amount is JPY15.2 billion. Page six is an analysis of the factors that contributed to the increase and decrease in operating profit. Excluding the impact of foreign exchange, operating profit increased by JPY2.7 billion from JP14.8 billion YoY. The breakdown of the increase/decrease is as follows. Excluding foreign exchange, net sales increased by JPY9.2 billion, while gross profit increased by JPY4.3 billion, resulting in a slight improvement of JPY0.5 billion in gross profit margin. An increase in SG & A expenses had a negative impact of JPY2.1 billion. The increase in SG&A expenses includes base cost increases, such as an increase in personnel expenses due to inflation, as well as up-front investment costs, such as the retirement of goodwill of BaxEnergy, which was acquired last year, and an increase in periodic expenses. Continued on page seven are orders, sales, and operating profit by segment. Orders for control systems, which is shown in blue, were down JPY8.3 billion YoY, but excluding the exchange rate, orders were almost unchanged from the previous year, up 0.4%. The number of large orders was quite concentrated in the same period of the previous year, and if we take only the last three months as a cut-off point, the number of orders received was approximately five times as large. Sales increased JPY1.3 billion, or 7.2% excluding foreign exchange. Operating profit increased JPY1.5 billion, or JPY2.6 billion in real terms excluding exchange rate effects. Next is the measuring instrument, shown in yellow. Orders were flat YoY, with a 6.7% increase excluding exchange rate fluctuations. Sales decreased slightly in nominal terms, but excluding exchange rate effects, sales grew by 4.8% and operating profit increased slightly. In this segment, orders for high-speed optical communication transceivers and optical spectrum analyzers for AI-related data centers remain strong, and demand for measuring instruments from consumer electronics manufacturers has also boosted overall order figures. There is no significant change from the previous year with regard to the last New Businesses and Others shown in green. Continuing on page eight, here are orders and sales by region for the control segment. Orders on the left side of the table show negative figures compared to the same period of the previous year, partly due to the impact of the strong yen. As mentioned at the beginning of this report, there are many regions where sales are firm on a real basis (excluding exchange rates), and in Southeast Asia and the Far East, sales grew by approximately 10%. We have also acquired large projects for CCUS and others. Sales in North America, Europe, Central and South America, and other regions also grew by 5% to 10% each. In the Middle East, we are seeing a reactionary decline due to the concentration of large projects in Saudi Arabia in the first quarter of last year, but we have also seen an increase in orders in the Middle East over the past three months and several large orders from the UAE, so we have secured the same level as last year except for the exchange rate. Continued on page nine. This is also a sales order by industry segment of control. Energy & Sustainability, shown in green at the bottom of the graph on the left, was down JPY2.8 billion from the previous year, but excluding the effect of exchange rates, the growth rate was 3.8%. As I mentioned earlier, in the same period of the previous year, large orders to Saudi Arabia were recorded in a concentrated manner. The recoil reduction was offset by the large orders from the UAE, ASEAN, and North America, as I mentioned earlier, as well as by the growth of the U.S.-focused business. The purple color in the middle is Materials. This was minus JPY5.8 billion, a decrease of 6.2% excluding the effect of exchange rates. Of the total decrease, approximately a little more than half is attributable to China, which is strongly affected by the economic slowdown in China, where the Materials business accounts for a large proportion of the total. In terms of the market environment, we expect that the appetite for investment will continue to be strong, especially in high- performance chemicals, but in 1Q of this fiscal year, we saw the effects of the economic slowdown in China and its ripple effects, including a reluctance to invest in basic chemicals. Finally, Life in orange. Orders received increased by JPY0.3 billion, or 6.1% excluding foreign exchange. While there was a reactionary decline from the large-lot projects in the same period of the previous fiscal year, strong sales of domestic food and pharmaceuticals offset the decline and secured growth. Continued on page 10. The table shows quarterly trends in orders by industry segment, broken down into large-lot and base orders. The upper part of the bar in each segment, the thin part, is for large lots of USD3 million or more, or for domestic deals of JPY300 million or more. The lower row is the lower base category. I will skip the individual explanation, but as I mentioned earlier, Energy & Sustainability received a considerable concentration of large orders in the same period last year, as you can see in the graph here. The results show that we were able to secure solid growth even in such an environment. Continued on page 11. This one shows quarterly trends broken down further down by industry segment. I will not explain each number this time, but we present a slightly more detailed classification from this time, which I would like to introduce. from this year, Mobility & Electric, Mining & Metals, and Pulp & Paper are presented separately in the Other segment. In addition, for Life, food and medicine are now separately labeled. In the future, we would like to show trends in this classification and then supplement and explain any predominant variations. The next slide on page 12 and thereafter continues with the annual forecast. Since there is no change from the earnings forecast explained in May, we will omit the explanation. That is all from me.
Operator: We will now begin the question-and-answer session. When it is your turn and the moderator calls your name, please mention your company name and your name, followed by your question. Please note that only 2 questions can be asked per person at a time. Now, Mr. Tanaka of Mizuho Securities, please go ahead.
Takeshi Tanaka: Thank you very much for your presentation. I am Tanaka from Mizuho Securities. I have two questions. First, please tell us about your evaluation of our first quarter results. The question is whether the 1Q results for orders, sales, and profit were good or bad compared to the company's internal plan. I heard that in addition to a strong base, you received large orders in the UAE, North America, and ASEAN countries, so it sounded as if the orders were better than expected. Please tell us how orders, sales, and profits compared to the plan.
Michiko Nakajima: I have said many things about the internal plan, but in fact, the internal plan has been stretched considerably and set even higher. If anything, in comparison to the level of risk that we had factored in when we announced our earnings forecast in May, as you just said, from my perspective as an accountant and financier, I think we have made a better start than expected in terms of orders received. While Materials was slightly weak, we believe that this was more than compensated for by the energy sector. Sales and impacted profit were almost in line with our expectations.
Takeshi Tanaka: Thank you. One additional point, is it correct to understand that the orders were good, not that they were ahead of schedule or anything like that, but that they got what they didn't expect, or that the projects came in more than expected? It would be helpful if you could explain a little more about the background of the good order.
Michiko Nakajima: Since only three months have passed, I think that we have been able to secure orders in areas where we were not sure if we would be able to get them or not, rather than that we are seeing what we did not see or where the probability of receiving an order has increased extremely high.
Okazaki: I understand very well. Secondly, I would like to know the factors behind the increase/decrease in operating profit on page 6, along with the tariff impact. If possible, I would like to know what factors, such as product gross profit, project gross profit, and the effect of price increases, contributed to the JPY500 million increase in gross profit margin. Also, I believe the impact of tariffs was factored into the annual plan at about JPY1.5 billion, or minus JPY1.5 billion in the gross margin, but I wonder how much of that was in the 1Q results. Also, please tell us if the forecast for the full year will change because of the change in the tax rate, as well as any indirect effects, both positive and negative, that you can see.
Michiko Nakajima: Regarding the breakdown of the gross profit of JPY500 million, there is not much that has changed this time. However, while sales of products were slightly weak this time due to the impact of China, sales of projects have been rising steadily, and we have made some improvements in products and project solution services to compensate for what could have been a negative JPY1 billion due to fluctuations in the composition of the market. That is the gross profit margin, increase/decrease by product, or rather by product. As for the impact of tariffs, the increase in import duties itself in the first quarter was about JPY0.3 billion. However, there is a slight time difference from the time it enters the U.S. to the time it is delivered to the customer, so the PL impact is a little lower than there. As to how the situation is compared to our annual forecast, some of you may have been following the news and may know more about this, but we have had a certain grace period since April, and we have landed here. As of May, we had factored in what would happen if the tariffs were applied at the level announced on April 2, and that the amount of tariff payment would be about JPY3 billion, of which JPY1.5 billion would be borne by customers, about half. Although China has not yet reached a settlement, the amount of tariffs paid is actually more than JPY1.5 billion, if we reflect the results so far. The question is to what extent the customer is willing to bear the burden. At this point, the impact on annual operating profit is not that large to begin with, so we will reflect this impact in the future as we look at the overall picture. That is all.
Takeshi Tanaka: Thank you. I was wondering if there are any negative indirect effects of tariffs, such as customers curtailing investment. On the other hand, I think there was a possibility of a positive effect, such as an improvement in the competitive environment in China or an increase in orders in North America, so please tell us if there are any indirect effects, positive or negative, as topics.
Michiko Nakajima: Some of the effects are positive and some are negative, and it is difficult to specify the indirect effects of tariffs, so it is more qualitative than numerical. I think the weakness in materials in 1Q was due to the slowdown in China and the lack of clarity on the tariff issue, which led customers to hold off on investment in general, or at least to wait and see. This is not only the Chinese market, but also the tariff rate will affect the long-term demand forecast in terms of where customers settle their accounts and where they purchase their materials. So some customers had an attitude of wait and see till the situation gets clarified. Since the situation has been settled so far, including Japan, I am expecting a sense of relief from the 2Q onward. I believe that the competitive environment in China is in some ways offsetting the current negative impact. It is difficult to find a concrete example. I'm very sorry.
Takeshi Tanaka: I understand very well. Thank you very much.
Operator: Thank you. Now Mr. Sasaki from UBS Securities, please.
Tsubasa Sasaki: My name is Sasaki from UBC Securities. Thank you for the very strong financial results today. First I also wanted to ask you two questions about the demand environment. The first is energy. You mentioned earlier that there was a large project in the UAE, and that there were also quite a few good projects in ASEAN and North America. If you could tell us what is actually happening in the field, what are the opinions of the business units and customers, and how it resulted in this good figures. Thank you.
Michiko Nakajima: Last year it was in Saudi Arabia with a focus on natural gas, and this time in the UAE. Some large energy-related projects are planned for a very long period of time. I believe that the planned projects have been realized at this timing, and that the firmness of the UAE in particular has been conspicuous this time. Also, as a whole, the downstream side is stronger this year than last year, when it was mainly upstream. As for the U.S., as you may have asked at one of our previous meetings, we have received orders for LNG-related projects, which had originally been in the works. In the ASEAN region, we have received a large number of orders related to CCUS, although I am not able to say which countries or which customers. Carbon capture-related products have been receiving a fair amount of demand not only in ASEAN but also in the Middle East, and we see this as an area that will continue to add to the demand trend.
Tsubasa Sasaki: Thank you very much. Is it a correct understanding that natural gas-related projects are contributing quite a bit to orders in various regions basically?
Michiko Nakajima: The natural gas area is a major contributor. Furthermore, from there, there is a spread of investment on the downstream side, and I wonder if there is a part of it that is viewed with the keyword "decarbonization".
Tsubasa Sasaki: I understand well. Thank you. Secondly, you also mentioned regional demand. Materials is weak in China, and as I mentioned earlier, I found that it is strong in energy in some regions. Conversely, if you look at the left side of page eight, you can see that India is quite weak, and likewise Latin America, I'm not sure if we can say that Latin America is doing well or not. Also, Japan is flat. May I please ask you to explain how you interpret the movements in Japan, India and Latin America and what is happening in each? Thank you.
Michiko Nakajima: Japan is flat, but I don't understand that any particular investment has weakened. The figures are cut out and presented for three months, so it is largely affected by the timing of recording. In general, it continues to be strong. If I were to venture a negative for the past three months, I would say that the wait-and-see attitude of the market may have been a bit of a factor in the wait for the Trump tariffs to be settled. That part was settled at 15%, so even if there were such a negative, we are wondering if there will be a proper movement after this. As for Latin America, there was quite a bit of foreign exchange impact, with growth of about 8% excluding foreign exchange. Although we do not have any specific industries in hand at this time, we understand that the growth in this sector continues to be strong. In India, our figures for the past three months have been negative, but conversations with local people indicate that there is a strong pipeline. Although tariffs are a concern, there is a positive prospect for projects based on long-term demand forecasts in the area where the population is growing and living standards are rising. However, I have heard that the timing of closing is still weak recently. That is all.
Tsubasa Sasaki: Thank you very much. In that sense, the overall impression is that although there was some talk of a wait-and-see attitude in some areas such as materials, the demand environment is basically very favorable, with strong demand in the areas you mentioned and in energy.
Michiko Nakajima: Materials is a concern for me who is in charge of accounting when I only look at the numbers. However, there are solid grounds on the business side of things. Materials are quite concentrated in the second half of the year, especially in 4Q. We have heard that we can do well there.
Tsubasa Sasaki: I understand very well. Thank you very much.
Operator: Thank you. Now, Mr. Inoue, Citigroup Securities, please ask your questions.
Takahiro Inoue: Thank you. I am Inoue from Citigroup Securities. I would like to ask two questions. I would also like to ask you first about orders. I think you commented that orders in the 1Q were off to a slightly better start than the May forecast. Based on the latest outlook for the 2Q and beyond, do you see a situation in which you will be able to exceed your full- year order plan in the 2Q and beyond?
Michiko Nakajima: It is still August, and there is still a lot of uncertainty as to whether we will receive a large order until the very end, whether we will get it or not, and whether it will be this fiscal year or the following fiscal year. I don't think we have made enough gains in the first quarter to be able to say that we will be able to surpass them at this point in time. As you saw earlier, 1Q of last year was a very good quarter, and that is why I said that we were able to surpass that quarter, which is a good start. Sorry. It may not be a solid answer.
Takahiro Inoue: Thank you very much. I would like to ask you a few additional questions. In terms of the environment for orders and demand, I believe you mentioned CCUS and energy-related industries in your earlier explanation. Is there a trend in this area where the pipeline or order environment is improving more than before?
Michiko Nakajima: It is difficult to say what the current fiscal year will bring, but I would say that the pipeline as a whole is increasing. As for natural gas, last year was very strong and we experience a recoil reduction this year. Despite this, we have quite large projects, and ones with pipe line, so it is important for us to secure these areas.
Takahiro Inoue: Thank you very much. I would also like to ask one more point on the analysis of profit increase/decrease as well. Regarding the SG&A expenses, I think you mentioned that the result was in line with the May plan regarding overall profits. Can you please tell us how you evaluate the adjustment of each item, especially SG&A expenses?
Michiko Nakajima: SG&A expenses are also in line with our May forecast. The annual forecast is minus JPY2.1 billion compared to the previous year's forecast of minus JPY6.7 billion, which may appear to be a bit ahead of schedule. In fact, in 1Q of last year, there was a reversal of the allocation, and although each item was not as large as I would like to explain, there were various small items that contributed to the increase in the reaction. We had already factored in this increase in 1Q, so if we subtract this factor, the growth is as expected.
Takahiro Inoue: I understand very clearly. That is all from me. Thank you.
Operator: Thank you. Next, Mr. Harada from Goldman Sachs Securities. Thank you.
Michiko Nakajima: To be honest, I don't have the material to talk about that at this time. In light of the flurry of decisions that have been made over the past few weeks, I think it is necessary to keep a close eye on the business side of sales to see how customers are perceiving the situation and how this will affect their future investment plans. This is not limited to the U.S., but also includes countries where we thought tariffs would rise more, but they have settled at this level. We think that it is necessary to take these points into consideration. As you mentioned, there is a stronghold of competition in the United States only. In this sense, what we can take and where we can access may be limited. We would like to confirm this with the business side. That is all.
Ryo Harada: Thank you very much. At the beginning of your explanation, you mentioned measurement instruments, such as spectramar analyzers for AI and optical transceivers, and I think that is where you dared to make your comment. I think Anritsu is one factor in the area that has seen a huge increase. I wonder if your company is growing in its own way. I know it's not a big part compared to the big former, but I was wondering if you could tell us about it, including the background you dared to mention. Thank you.
Michiko Nakajima: As you can see from the ratio, the control sector accounts for a large proportion of the total, so the explanation by region and industry is inevitably dominated by the control sector. I am trying to explain the movement with respect to measuring instruments in the documents here. This is why we have mentioned it again in this issue. The data center-related business has remained strong in the past. In particular, while China has been particularly harsh in the area of control, there are areas where China has selected fields and is investing in them under the leadership of the government, and measuring equipment is also performing well in China. In this way, there is some areas that shows trend different from the overall one. This is the reason why I was making a few additions. The field of measuring instruments, which you just mentioned about Anritsu, is a field where everyone is growing at a high level, while being quite segregated. I explained that we are also making steady progress in this area. That is all.
Ryo Harada: Thank you very much. Sorry, but can you explain in a simple and flat manner? What you said about this area is that there is the US and there is China as well?
Michiko Nakajima: Yes. In addition to Japan, China, and other countries, we also sell measuring equipment from each of our other bases.
Ryo Harada: I understand. Thank you.
Operator: Excuse me. I am sorry that I do not have even the ratios by country on hand right now.
Ryo Harada: That’s fine, thank you very much. That's all from me.
Operator: Okay, please continue with Nomura Securities, Mr. Wang.
Boqiong Wang: Hello, Nomura Securities, my name is Wang. Thank you very much for your presentation. I would like to ask you about China. Looking at YoY, the 1Q of the previous year was also relatively high compared to the 2Q, 3Q, and 4Q, so the 1Q seems to be recovering relatively well compared to the low levels of the 2Q to 4Q of the previous year when viewed on a quarterly basis. Should we expect this to drop again in the next 2Q due to some seasonality, or is this level in the 1Q becoming the base?
Michiko Nakajima: Regarding the period between the 1Q and 2Q, we ourselves have been making up our own figures. In fact, we raised prices in all regions globally as of July 1 last year, and customers, especially for product items, placed orders in advance of the price increase. In China, the level was high in 1Q, but it was negative in 2Q. On the other hand, for China, we have decided not to raise prices uniformly, taking into account market conditions. To put it the other way around, it is at this level as a normal value. Therefore, although the order volume is negative on the surface, we do not expect it to be a significant drop in terms of orders. That is all.
Boqiong Wang: Thank you very much. Second, in the area of profit increase/decrease, was the gross margin improvement in-line with your company's plan, or is it coming out on the upside? The products, projects, and solutions have been improved a little bit. I would appreciate it if you could give us more details about what has been improved.
Michiko Nakajima: To be honest, it is not so much that this part has improved, but rather that there has been an overall improvement. However, if we take only three months out of the year, we can honestly say that the timing of which projects sell up can easily move more than JPY1 billion. While we would like to point out one reason for the improvement from last year, the project side has seen a considerable increase in orders since the fourth quarter of FY23. As sales stand on a construction promotion basis, the first half of the year is sold at a lower gross margin with a little contingency, and as progress is made, there is a point where the profit margin increases, including the release there. We believe that the increase in the number of items approaching the latter stages of that construction progress have improved the overall situation in some areas. However, each case is quite different, so please understand that the mix may vary from period to period. That is all.
Ryo Harada: I understand very well. Thank you. That is all.
Operator: Thank you very much. Next, Mr. Tai, Daiwa Securities, please go ahead.
Hirosuke Tai: This is Tai. Just one very simple thing, can you tell me a little bit about the factors that led to why the corporate tax adjustment was so high in this first quarter?
Michiko Nakajima: This is more like domestic matter. Yokogawa Electric Corporation and its wholly-owned consolidated tax payment group have changed their accounting grouping to determine the recoverability of deferred tax assets as their earnings levels have risen. As a result, deferred tax assets that would not have been set up in the past can now be set up in this category. Therefore, this can be seen as its impact on accounting. That's the one major point.
Hirosuke Tai: This is a story that was assumed to some extent in your annual budget, right?
Michiko Nakajima: Yes, we are looking at the overall picture to see if there is anything that could possibly be included, such as a special loss, while also including these positive factors, so it is not a question of whether we included all of them or not. I had put in a little bit.
Hirosuke Tai: I understand. That is all. Thank you.
Operator: Thank you very much. There are still a few minutes left, but it seems there are no more questions, so we will now conclude this question-and-answer session. This concludes our financial results briefing. Thank you very much for your participation today.
Michiko Nakajima: Thank you very much. [END]