Ihi Corp Unsp/Adr

I am Hiroshi Ide, President and Chief Executive Officer. Thank you very much for joining today's earnings briefing despite your busy schedules. Today, I'd like to explain our medium to longer term direction looking ahead to 2040 and the roadmap toward medium to longer term. First, let me explain our medium to longer term direction. In 2020, demand for civil oil engines declined sharply as a result of COVID-19. and at that time we launched a three-year plan under the name Project Change. Through this initiative, we worked to strengthen lifecycle business and our cost structure. Since then, under the three-year Group Management Policies 2023 through fiscal year 2025, we have especially advanced profitability improvements and business portfolio reform and have been preparing for future growth. Since 2020, by the way, I became the president in 2020, we have implemented various initiatives such as portfolio reform, strengthening our financial base, and structural reforms. Basically, we've been working on these initiatives on roughly a three-year time horizon, while adjusting the direction in response to changing circumstances while monitoring our progress along the way. It has been a little bit more than six years since then. As we consider future growth, although we have pursued various initiatives based on a three-year time horizon up to now, as you are all aware, the time horizon for IHI's businesses, whether in business development or technology development, is typically around 10 to 15 years. With this in mind, we believe it is necessary to formulate our vision over a longer time horizon, and accordingly we have presented this medium to longer-term direction as our vision for the future. Especially, we'd like to present our direction toward 2040. That said, even 2040 is still quite a long way off, some 14 to 15 years from now on. Naturally, investors and other stakeholders might be also concerned about what will happen in the near term, so we will basically keep providing clear three-year guidance. At the same time, I would also like to present our roadmap toward 2040 later. This page describes our overall perspective. Since Commodore Perry's arrival in Japan in 1853, when the Tokugawa Shogunate ordered the Mito Domain to establish the Ishikawajima Shipyard, IHI's history has begun. In that sense, IHI is a company that has continued to address important industrial and national-level challenges through technology. This is IHI's starting point, and we believe this fundamental principle will remain unchanged into the future. Accordingly, as stated here, we have defined our desired state as for industry and national security, supporting the safety, security, and prosperity of people worldwide at its core. We refer here to three domains, while we currently have four business segments. However, the domains discussed here are by no means intended to represent IHI's organizational structure in 2040. Rather, they are intended to illustrate the fields in which the IHI group is expected to play an active role as of 2040. For example, the term aerospace may give the impression that we are focused solely on aviation and space. However, we also possess technologies such as surface engineering technology related to aerospace, which is currently part of our industrial machinery segment. In this sense, the fields we envision toward 2040 are areas where IHI's technologies and products will increasingly overlap and crossover, and that is the idea we intended to express in this way. As noted in small print at the bottom of the page, there were several inappropriate incidents, particularly in FY2024. We recognize that these incidents seriously undermined the trust of our stakeholders, and all of us at the company strongly believe that we must never betray that trust again. In that sense, while we are looking ahead toward our desired state in 2040, We have deliberately included here the continued strengthening of risk management and governance as a fundamental foundation that must be upheld in the present. I would also like to add that we are committed to continuing these efforts on an ongoing basis. We took a step back and looked back on the history of IHI's businesses, and through extensive discussions within management, we considered how IHI has created value through its businesses over the more than 170 years of its history. You will find two bullet points on this slide. Fundamentally, I believe IHI has built markets with high entry barriers through overwhelmingly strong technology. Of course, these entry barriers are supported by strong technologies themselves, but they are also built through collaborations and relationships with partners and customers. There are also relationships with the government. While receiving support from the government and cooperating with various institutions, IHI has established high entry barriers through strong technology development either independently or together with partners. We'd like to continue valuing this business model or this way of creating businesses going forward as well. IHI has been involved in a wide range of businesses over the years, and we have significantly streamlined our portfolio over the past several years. Even so, there is still a lingering perception that we are involved in all kinds of businesses. However, going forward, we intend to ensure that IHI's businesses remain firmly rooted in technology, and to focus on how we can leverage our strengths in specific businesses to contribute to national industries. Through this, we aim to continue building high entry barriers, and this is the business model we intend to maintain going forward. An example involving Arrow Engine is shown at the bottom of that page. By the way, this is not to say that only the Arrow Engine business follows this pattern, but as illustrated here, IHI's Arrow Engine business, which is currently driving the company's growth, originally began with licensed domestic production for defense applications. Its technologies were then recognized, enabling participation in the international joint development of the V-2500 Sevilla aero engine, and through involvement in various programs, IHI evolved into an indispensable partner for OEMs. As a culmination of these efforts, we are now participating in the international joint development of the next-generation fighter aircraft. In this sense, this diagram is intended to illustrate in an easy-to-understand way what we believe to be one of IHI's core business processes, expanding from domestic to global markets and broadening opportunities through dual-use applications. Next slide, please. There are three growth scenarios toward 2040, namely aerospace, energy, and infrastructure, which are outlined on the following three pages. Due to time constraints, I will skip the details, but in markets where growth is expected, we aim to achieve growth exceeding market growth rates by leveraging IHI's unique strengths, such as propulsion technologies, which are highlighted on this page in the aerospace field. Next, as for energy business, we believe that manufacturing technology for key components for nuclear power plants, Japan's only back-end technology, and the world's only ammonia combustion technology will serve as key sources of our competitive strengths. Next on infrastructure, when it comes to infrastructure at IHI, you might imagine bridges and water gates. We are not referring just about bridges and water gates, but also referring infrastructure, including industrial infrastructure. We believe there is no doubt that maintenance and renewal demand will become even more important in infrastructure or industrial infrastructure going forward.

Next page.

This is not only in infrastructure business, but we have been focused much on expanding lifecycle business. We intend to maintain lifecycle business as a stable earning space. As I touched upon earlier, we'd like to consider doing business in the future, leveraging our overwhelmingly strong technology. Although I cannot mention today, we are narrowing down our focus technology areas. We'd like to prioritize allocating resources to those focus technology areas, which we plan to deploy to field including aerospace, infrastructure, and energy, as explained earlier. On the human capital side, a substantial number of mid-career employees are joining our aerospace and energy businesses. As diversity is increasing dramatically at IHI, and I believe our challenges are to develop talent very quickly and to foster a culture to take on more new challenges, as we expect IHI's business field is to change much looking ahead. to the right about DX. We recognize that the use of DX technologies at IHI is still insufficient and will strengthen it and also make investment, while at the same time enhancing our information security capabilities more than anything in our business including defense and aerospace and nuclear energy.