JGC Holdings Corporation

This is Sun Taeguchi, General Manager, Group Finance and Accounting Department. I am pleased to explain the outline of the second quarter, FY 2021. Allow me to begin with slide 3. This shows the highlights for the second quarter. Total engineering segment. Thanks to the sure execution on our side, we had several projects having improved profit Profit margin went above the assumption we had in the beginning of the fiscal year. Functional Materials Manufacturing In this segment, demand is continuing to recover particularly in fine chemical. With this, it has become more apparent this business is growing both in sales and profit. Our negotiations with the client for the Excess LNG project resulted in a settlement based upon the final agreement. We were able to finish the number within the range of the extraordinary loss posted in the first quarter. Next, please look at slide 4 on the consolidated income statement. Net sales was 217.9 billion yen, up 18.5 billion yen year-on-year. Gross profit was 20.8 billion yen, down 700 million yen. Operating profit was 10.3 billion yen, down 1.1 billion yen. Profit declined due to the large one-time increase in profit in the same quarter previous year, but profit ratio became 9.6%. above the 8.1% we had forecasted in the beginning of the year. Original income was 12.6 billion yen, up 600 million yen year-on-year. This was driven mainly by the increased profit in investment based upon equity method as well as the decline in the loss by foreign exchanges due to the cheaper yen. Pure net loss attributable to owners of the parent was 48.4 billion yen on the quarterly basis. We booked extraordinary loss for the excess related loss, so we are showing the final loss number here. Next slide 5. This shows information by segment. Total Engineering This segment is surely increasing the number of the projects at hand. Net sales was 195.6 billion yen, up 17.1 billion yen year on year. Its segment profit was 7.1 billion yen, down 1.9 billion yen. The major contributing projects were an LNG project in Canada, a floating LNG project in Mozambique, a refinery project in Iraq, and a biomass power plant in Japan, among others. Functional Materials Manufacturing Its sales and profit grew thanks to the recovery in the domestic demand here in Japan. Net sales was 21.4 billion yen, up 1.2 billion yen. Segment profit was 3.7 billion yen, up 1 billion yen. Please refer to the numbers in others for your reference. Select 6 shows balance sheet. Total assets became 651 billion yen, down 51.4 billion yen from the beginning of the year. The provision posted in the first quarter was liquidated as a result of the final resolution reached in the negotiations with the client for the excess LNG project. Due to the posting of the final loss from the extraordinary loss posted for the excess LNG project, net assets went down compared with the end of the previous fiscal year.

The shareholders' equity ratio was 55.9%, showing the solid financial condition. The balance of our share of cash in joint ventures, which is not posted in the balance sheet, was 202.6 billion yen. Slide 7 for cash flows. The balance of cash and the cash equivalent is down 9.1 billion yen from the beginning of the fiscal year to 259.1 billion yen. Cash used in operating activities amounted to 4.8 billion yen. This negative cash flow is primarily due to the payments from advances received in previous fiscal year as a result of the progress made with the construction in the total engineering segment. Cash used in investing activities was 3.9 billion yen due to investment in corporate venture capital, capital investment related to the functional materials manufacturing segment, and DX related investment. Cash used in financial activities was 0.9 billion yen due to dividend payment and others. Slide 8 for new contracts. We forecasted 500 billion yen in new contracts for the full year and have reached 123.9 billion yen in new contracts. For overseas clients, investment decisions on the large-scale anticipated project are expected later in the fiscal year, and the new contracts only amount to 13.4 billion yen. In Japan, orders were strong with approximately 70% of the full-year forecast of 110.4 billion yen achieved. Major project includes the construction of a pharmaceutical plant. Slide 9. Outstanding contract. The order backlog as of the end of September 2021 was 1,128.7 billion yen, down slightly since the end of the previous fiscal year. By business area, orders related to oil and gas accounted for... 41% and related to LNG accounted for 36%. By region, the orders backlog increased to 22% in Japan, but decreased to 32% in Americas and other where sales achieved. Finally, slide 10 for forecast for fiscal 2021. We have raised our forecast for income due to the higher than expected income the first half in the total engineering segment and the trend for higher income due to the recovery in demand in functional materials manufacturing segment. There has been no change to our forecast for new orders, net sales, and dividends. and the exchange rate of 113 yen to a dollar has been used in this forecast. We expect the impact of 1 yen fluctuation in the exchange rate to be 3 billion yen for sales, 0.3 billion yen for gross profit, and 0.4 billion yen for ordinary income. This concludes the overview of the financial results.

This is Masayuki Sato, Chairman of JGC. I am pleased to share our recent market environment as well as our outlook going forward. We announced our long-term management vision and our medium-term business plan back in May. Six months have passed since then. Though now we are faced with big changes in our current times, it is still possible to predict long-term structural changes to some extent. We now committed ourselves to our long-term vision. We have judged any group, purpose, or enhancing planetary health as our milestones. We are here now to solve three social issues, namely realizing both stable supply of energy and decarbonization, efforts to reduce environmental footprint in resource use, and building and maintaining infrastructure services to support human lives. Over the past six months, at COP26, the advanced nations announced their efforts to phase out coal-fired power in the 2030s, and the world as a whole do so in 2040s. A total of 46 countries agreed to this. excluding Japan, the U.S., China, and India. We are reminded again the world of energy is further progressing toward low-carbon and decarbonization. Mr. Shizaka will explain our efforts later how JGCN group is responding to such a movement. Hydrogen, fuel ammonia, sustainable aviation fuel, chemical recycling, and others are now considered as engines for future growth for all our business groups as defined in our medium-term business plan. We believe that we are making a steady progress toward that end. In terms of the energy demand for the entire world, we do feel changes are actually taking place in the past six months. Since last year, the global energy demand has continuously dampened by COVID-19. But nowadays, we are observing the infections are settling down, and with the financial stimulus policy support by some countries, though the situation varies from one country to another, we are now observing the global economy as a whole moving on recovery trend, and energy demand is recovering.

Lately, prices of crude oil and natural gas have been soaring, and a variety of reasons are behind them, including political ones. and the trend of energy supply shortages has become clear. Needless to say, the trend of low carbon and decarbonization is irreversible, and we need to ensure to respond to this trend. Under these circumstances, I am convinced that the realistic energy transition which is to realize low carbon and decarbonization while meeting the global energy demand for the time being is essential for the global sustainable growth. Long-term management vision and medium-term business plan of JGC Group are based on the advancement of such realistic energy transition, and they represent the policy to expand energy demand and promote low-carbon and decarbonization in parallel. In 2022 and onward, presumably the trend of energy supply shortage will continue, and energy-related investment features currently sluggish will be resumed. For the GAGC group, since last year, tough market environment has continued, but we assume, partly hopefully, that FY20-21 will be the bottom. On the other hand, we do not have optimistic prospect of sustained one-way expansion of the market from now. As mentioned before, as trend for low-carbon and decarbonization is irreversible. We accelerate the business diversification for other areas, other than energy transition, as described in the Long-Term Management Vision and Medium-Term Plan. I would appreciate your further support and cooperation. That concludes my remarks.

Hello, everybody. This is Shizuka. I am pleased to explain the business overview. Please turn to page 2. Today I will explain following those countries. Please turn to page 4. First, total engineering orders. The target in the beginning of the fiscal year was 500 billion yen. I will go into details later, but overseas energy 260 billion yen, overseas infrastructure 80 billion yen, and domestic business being 160 billion yen, so putting them together the target was 500 billion yen. As Mr. Taguchi already explained this, the actual order for the first half was 124 billion yen. But if we look at the latest number, since we closed Q2 up until today, the order number is now 140 billion yen. Out of the 124 billion yen, the domestic projects accounted for much of it. It has made remarkable progress. They include NG LN Project, Singapore Catalyst Plant, and Floating LNG Feed. So as of now, it stands at 190 billion yen. It represents about 40% vis-à-vis the 500 billion yen target, so we still have 310 billion yen to go. I will cover this later, but we are firmly determined to achieve this target. Please turn to page 5. As for the market environment, as Mr. Sato has already explained this, we are still having uncertainties overall. But our clients resumed orders for feasibility studies and feed. I believe we are now seeing somewhat brighter signs. As has been explained also, we have received orders for feed for LNG project, feed for the ethylene projects in the Middle East, as well as some feasibility studies for chemical projects. Furthermore, we are receiving more inquiries about low-end decarbonization, as well as clients' planned investment for resource circulation. And out of those inquiries, we are actually writing some real orders for feasibility studies and feed. Being more specific, we are receiving possible feasibility studies for the blue ammonium, green hydrogen, gasification of chemical recycling of wasted plastics. As for a large LNG project, we do have some expectations say FY22 and onwards. At the LNG facility side, we do expect to have opportunities, say, for stopping flaring to burn extra gas for the sake of lower carbonization. This type of LNG utilizing the low-carbon technology, we believe, will become the mainstream. As for the domestic market, it has become quite strong. Active capex is continuing, particularly in pharmaceuticals and chemicals. We are already receiving many inquiries about vaccine manufacturing facilities, for example, so I do expect the domestic market continues to be strong for some time to come. Please look at page 6. The numbers I have already referred to earlier, 260 billion yen, 80 billion yen, and 160 billion yen. First, the energy solutions, 260 billion yen. As of now, we have received orders as much as 75 billion yen coming from feed for NGL expansion and LNG feed. Going forward, we expect to receive orders for the large gas processing project in Saudi Arabia and the third phase construction in the US for ethylene and gas chemicals. This is our long-standing client. In Thailand, there is a rather large joint chemical project. We have already submitted our quotation, so we do hope to get results, say, by the end of this year or by the end of the current fiscal year. Now the right-hand side on PaceX on infrastructure. Here, unfortunately, opportunities are heavily concentrated in the second half, so the first half performance is not that good. That said though, it is my pleasure to inform you here that we have LNG receiving base project in Thailand and the project in Malaysia in the pharmaceuticals and also the biomass field plant in Vietnam. We are now finally getting the fruits out of the seeds we had planted in the past. With these opportunities coming up, we do hope that we can increase the numbers as much as possible. Now please page 7. This is domestic EPC. As has been explained several times, the domestic business is strong. In the first half, we received an order of 110 billion yen. Included here is the largest ever for us pharmaceutical manufacturing plant to produce synthetic drug substances. And going forward, well, we have already orders to date 115 billion yen. We will aim at 160 billion yen or more from pharmaceuticals, three plants and the maintenance and others. Now, please look at page 8. Here, I would like to update you on the two major projects we are now engaged in. First is the LNG project in Canada. This is a picture from the site. At the center is the main cryogenic tower. This is the main facility to cool down LNG. We have completed this installation. As shown in the picture, we still have some available land where we are going to install those modules now being produced in some countries. I will touch upon them later. Yes, our projects were affected by COVID-19, but we had completed a good round of negotiations with our client concerning the adjusted delivery time as well as the additional cost. So the project is proceeding rather smoothly. Next page 9. This is the module I was earlier talking about. Left shows the module now being made in Jindao, China. This process module weighs 7,000 tons. The right one is now being made in Florence, Italy. This is a compressor module. Moving on to the next page. This shows modules to be shipped out from Indonesia. Please to inform you that the first shipment arrived at Canada today. So it is going rather smoothly.

Please turn to page 11. This is a project in Basra, Iraq, that we received order in the previous year. And currently it is in the procurement and engineering phase. This was also affected by COVID, but by having design meetings with clients in Dubai and other locations, we are progressing the project, minimizing the impact. This picture shows the groundwork on site. We will ensure thorough crisis management, including those for contingencies, to complete the project. Please turn to page 12, functional materials manufacturing. Initial targets are shown in the middle, 40 billion yen of net sales and 5 billion yen of segment profit. As Taguchi mentioned before, they were revised upward due to strong demand to 43 billion yen for net sales and 6.6 billion yen for segment profit. As of today, 21.4 billion yen of net sales and 3.7 billion yen of segment profit were achieved. As for catalyst, chemical catalyst recovered strongly. In fine chemical products, demand for silicazole, cosmetics materials, and coating agent for glasses increased. and the polishing materials for semiconductor production equipment have also been robust. Page 14, medium-term business plan, includes three key strategies. First one is transformation of EPC operation. The second one is expansion of manufacturing business for high-performance functional materials. And the third one is the establishment of future engines of growth. Let me briefly comment on them. But as I'd like to spare more time for Q&A session, I'd like to walk you through the topics here. Page 14 shows the transformation of EPC operation. To accelerate the transformation of overseas EPC operation, Mr. Faraham Mojiv, who joined the company in May 2020, was appointed as a president of JGC Corporation, effective January 1, 2022. He was formerly the president in charge of project delivery at KBR Kellogg-Brown route. Second, for the EPC DX, 250 members are working to complete this EPCDX. From April 2023, we will realize complete digitalization under the slogan of Digital Project Delivery. Strengthening framework for domestic pharmaceutical business was already press released. We acquired pharmaceutical plant EPC business of IHI Plant Service and we pursue the drastically growing pharmaceutical business. The last one is to start the preparations to establish regional headquarters for Asian market. Preparation has finished and from January 2022, the operation will start. Please turn to page 15. Second key strategy is the expansion of manufacturing business for high-performance functional materials. Responding to higher semiconductor demand, We are considering the expansion of production capacity of CMP polishing materials to increase production. As for venturing into high-speed communications materials, as you know, with the progress in 5G, new materials are required. And we are developing these materials. and we are expanding application for future life science materials, including antibacterial and dental materials. In fine ceramics, we concluded basic agreement on transferring the ceramics business of Showa Denko Materials, which was former Hitachi Chemical, one of our peers, to expand the portfolio of our ceramics business. Please turn to page 16. Establishment of future engines of growth. Sato mentioned this before. Not only devoting to the immediate EPC business, but we are also seeding for the following years and for the future. The top one is SAF, Sustainable Aviation Fuel. We are developing SAF with Revo International and Cosmo Oil, targeting the market supply in 2025. As for green chemical, as mentioned before, feasibility studies were awarded. And in Fukushima prefecture, we'll work with Asahi Kasei for green chemical demonstration project. SMR, small modular reactors, was also press released. We invested in the US-based New Scale Power to participate in project in Asia, among others. Recently, under Biden administration, it is reported that SMO will be introduced in Romania, and we expect the increasing opportunities in the future in this field. As for circular economy, we are working jointly with universities and manufacturers in plastic waste recycling through oilification and gasification and textile recycling. The initiatives presented in this future growth engine will not be reflected in the business results immediately, but will continue to work on these as seeding for the future growth of the group. This concludes my presentation. Thank you for your attention.