Mitsubishi Electric Corporation

It's time to begin the Consolidated Financial Results Briefing for the third quarter of fiscal year 2025 by Mitsubishi Electric. I would like to introduce to you today's presenter, Executive Officer and CFO, Kuniaki Masuda. Masuda-san, over to you.

Hello, ladies and gentlemen, this is Masuda from Mitsubishi Electric. Thank you very much for joining our financial briefing to discuss our overview of Mitsubishi Electric's consolidated financial results for the third quarter of fiscal 25. Page 3 is the executive summary. The third quarter of fiscal year 25 saw the impact of weaker yen, compounded by sales growth in the infrastructure and life segments, and the results of ongoing efforts to improve profitability and efficiency in each business. Our revenue for the quarter amounted to ¥1,356.7 billion and operating profit ¥126.8 billion, both reaching record highs for a quarter three. Even excluding a gain in the sales of shares in MD Logis Corporation, operating profit was the highest ever recorded. Both revenue and operating profit for the nine months through Q3 also reached record highs. For the entire year of FY25, our forecast for revenues is 5.4 trillion yen, up 10 billion yen from the previous forecast. while operating income of 400 billion yen remains unchanged. We will continue our efforts to improve profitability and efficiency to secure our business performance. Page 5 shows the results of our group for the three months of Q3. Revenue increased 112.8 billion yen year-on-year to 1,356.7 billion yen, a record high surpassing the quarter three of fiscal year 24. Operating profit increased 40.3 billion yen year-on-year to 126.8 billion yen, a record high surpassing the same quarter last year, and the operating profit margin improved 2.4 percentage points to a record high 9.4%. This operating profit includes a gain of approximately 24 billion yen from the transfer of shares in MD Lodges, excluding which the operating margin improvement is 0.6 percentage point at the margin of 7.6%. Profit before income taxes includes approximately 5 billion yen of equity method earnings from the transfer of shares and MD lodges. Both profit before taxes and net income for Q3 have reached record highs. Page 6 shows the results for the first nine months of the year. Revenue of 4 trillion 300 million yen, operating profit of 303.5 billion yen, and operating margin of 7.6% are all record highs for the cumulative three quarters. Page 7 shows details of changes in revenues and operating profit for the three months of Q3. The effect of the exchange rate? is an increase in revenues by 27 billion yen and an income by 7 billion yen. The increase in operating income of 33.4 billion yen due to volume changes includes a gain in approximately 24 billion yen from the transfer of MDA largest shares. Cost increases in parts and materials, as well as logistics cost deterioration of about 10 billion yen, and composition of the business was negatively impacted by the reduced proportion of the FA systems business, still we have managed to post increase in operating profit year-on-year, excluding MDLodge's share sales and Forex impact. By business segments, the industry and mobility segments saw year-on-year decline in both top and bottom lines, but This was offset by efforts to improve profitability and efficiency in the infrastructure, life and semiconductor and device segments. Similarly, on page 8, we show the changes in revenues and operating profit for the first nine months of the year. The effect of exchange rate is an increase in top line of 111 billion yen and 31 billion yen in the bottom line. The increase in the cost of materials and logistics was compensated for by price improvement and other profit improvement efforts. Page 9 shows the consolidated income statement for the three months of Q3. Cost-to-sales ratio improved by 0.5 percentage points from the same period last year. The deterioration in the industry and mobility segment was offset by improvements in other segments. SG&A expenses increased by 24 billion yen from last year's Q3 due to factors such as increase in approximately 5 billion yen in currency translation due to the weaker yen, as well as an increase in personnel expenses and R&D investments. Other profit increased by 23.2 billion yen year-on-year due to a gain of approximately 24 billion yen from the shares of MD Logis. Financial incomes and expenses improved mostly due to the impact of foreign exchange. The 8.5 billion yen improvement in share of profit of investments accounted for using the equity method includes the mark-to-market impact of the equity investment and MD Logis. which amounts to about 5 billion yen. Please refer to page 10 later. I will skip over to page 11 to explain the consolidated statement of financial position. Assets increased 67.4 billion yen from the end of the previous fiscal year. Inventory increased by 82.2 billion yen. Since there was an increase of 23.4 billion yen in currency translation, actual increase increased is 58.8 billion yen. While inventories in the build-to-order business increased due to progress in construction, the balance in the mass production business decreased from the end of the previous fiscal year in the air conditioning and home appliance business, FA systems business, and semiconductor device segments. Inventories decreased 2.7 billion yen from the same period last year and excluding The 49.5 billion increase in yen value due to the impact of forex inventory decrease was 52.2 billion yen, indicating a steady progress in optimization of inventory balance. Total equity increased 177.1 billion yen from the end of the previous fiscal year. Of this amount, equity attributable to Mitsubishi Electric's shareholders increased ¥178.9 billion from the end of last fiscal year to ¥3,910.3 billion, largely due to a ¥248 billion increase in net profit, which was partly offset by a decrease due to dividends to shareholders. The ratio of equity attributed to owners was 2.1%, the increase to 62.7%.

Page 12 shows consolidated cash flow for the first nine months of the fiscal year. Inflow from operating activities increased by 109.1 billion yen year-on-year to 301.8.1 billion yen due to net profit and smaller payment in trade payables. Cash flow from investing activities was an outflow of 133.9 billion yen, 65 billion yen smaller year-on-year due to the transfer of shares of MD Logis this year. Resulting free cash flow was an inflow of 174.1 billion yen, an increase of 174.2 billion yen year-on-year. Page 13 shows the revenue and operating profit by segment. In Q3, infrastructure, life, and business platforms saw year-on-year increase in both revenue and operating profit, while industry and mobility saw decreases in both. Semiconductor and device decreased in revenue but increased in OP. Same situation as the first nine months as seen on the next page. On the following pages, each segment will be detailed. Numbers for each sub-segment are listed on the supplementary information on pages 23 and 24. Please skip to page 15. I'll start with infrastructure segment. and the three sub-segments within this segment saw year-on-year increases in both revenue and profits in Q3. Public utility systems business had higher orders, revenue, and operating profit year-on-year thanks to strong performance. and the UPS business for overseas data centers, as well as solid transportation business in and outside Japan and the public utility business in Japan. OPM improved significantly due to changes in the project portfolio with many highly profitable projects in Q3. In the energy systems business, Demand for power stabilization remained strong due to growing renewable energy and construction of data centers, particularly overseas, helped by profitability improvement initiatives, orders, revenue, and operating profit all exceeded the level of a prior Q3. In the defence and space systems business, orders revenue and opening profit in both sectors exceeded the same period of the previous year. OPM improved significantly thanks to changes in project portfolios such as resolution of duration in difficult development projects in the space sector and faster progress in construction following improved contract terms in the defence sector. Although OPM will not stay at this level because this is due to temporary factors such as the changes in project portfolio, orders did increase in a year and is also expected to grow significantly for the full year. We expect to see a steady increase in revenue and operating profit going forward. Page 16 shows industry and mobility segment. In the airfare systems business, we had a expected weak investment in decarbonisation sectors such as lithium-ion batteries, but the situation is proving to be tougher than expected. Meanwhile, demand has increased continuously in some markets such as CapEx for smartphone AI and Machine tools and orders were higher year-on-year, showing a recovery. But demand for high-profit models has not recovered to the expected level, and due to changes in the product mix, revenue was flat and operating profit was lower than the previous year. We will continue to make efforts to underpin company performance, including price and cost improvements. In the automotive business, both revenue and operating profit for Q3 were down year-on-year due to weaker demand from China and the impact of varying timing of price improvements. Last fiscal year, price negotiations resulted in significant improvements in Q3, but this year many customers are still negotiating. aiming to conclude the price in the fourth quarter. Please turn to page 17 for life segment. Building systems business for higher orders and revenue and operating profit year-on-year for Q3, mainly in Asia excluding China and Japan. In the air conditioning system and home product business, While demand in Europe was weak, revenue increased in North America, pushed by strong demand for products using old refrigerants due to refrigerant conversions, and demand was also strong in Asia and Japan. Both revenue and operating profit for Q3 were higher year-on-year. Please turn to page 18. In the business platform business, demand remained steady, and Q3 orders revenue and operating profit all grew year-on-year. In the semiconductor device segment, while demand in major markets for power semiconductors stagnated, including weaker demand for sectors such as EV, air conditioning in China, and factory automation, demand for optical devices for communication was solid. While revenue in the Q3 decreased year-on-year, operating profit increased due to factors such as change in product mix. Please turn to page 19 for revenue by location of customers in the third quarter. Overseas revenue increased 55.1 billion yen or 109% year-on-year to 680.7 billion yen due to weaker yen despite a decrease in demand in some regions and sectors. Revenue from Japan increased by 57.6 billion yen year-on-year, or 1.9%, and the ratio of overseas revenue to consolidated revenue decreased to 50.2%, lower than the previous year. Please turn to page 21 for the full-year forecast. We now expect revenue of 5.4 trillion yen, which is 10 billion yen higher than the previous forecast, and operating profit is expected to remain unchanged at 400 billion yen. Revenue and operating profit by segment in the revised forecast are disclosed in the supplementary information on page 25. Although demand in some areas of the FAA system's business is continuing to recover, our forecast was revised with the expectation that demand for the group's highly profitable medium to large-sized controllers and servers will remain weak for the rest of the fiscal year. Meanwhile, based on the current situation, we have revised upwards our forecast for defence and aerospace systems and semiconductor-owned devices. That's all from me. Thank you for your kind attention.