JGC Holdings Corporation

I am Taguchi, General Manager of Finance Unit. I would like to present the outline of financial results for fiscal year 2022. I will explain the results for FY 2022, followed by the forecast for FY 2023. First, page 4 is the highlights of FY 2022 results. Three highlights are listed. Due to the steady progress in major projects, including LNG in Canada and refinery in Iraq, both net sales and net profit were above the forecast. Order intake was in high level, almost in line with the plan, and the sufficient level of order backlog, ¥1,563.4 billion, was secured. As for dividend, Following the shareholder return policy, we keep the dividend payout ratio of 30%. Number of shares decreased in this fiscal year following the share buyback completion of 20 billion yen, which was decided in February. With this, dividend per share will be 38 yen, up by 2 yen from the forecast. Next, this is the income statement. We recorded substantial year-on-year growth in sales and profit. Net sales were 606.8 billion yen, up 42% year-on-year. Profit ratio increased 0.4 percentage points to 11%. Operating profit increased 77% to 36.6 billion yen, despite the increased SG&A cost. Ordinary profit increased 68% to 50.5 billion yen. And profit and loss attributable to owners or parent turned positive, 30.6 billion yen. ROE was 7.8%. Next, this is segment information. In total engineering segment, sales and profit increased year on year. Net sales increased 173.6 billion yen year-on-year to 551.6 billion as large project in Canada and Iraq overseas, and life science and biomass power plant businesses in Japan progress steadily as planned. Segment profit increased by 16.3 billion yen year-on-year to 33.4 billion yen due to the profitability improvement with a steady execution of project and impact by depreciation of yen. In the fourth quarter, additional profit was posted due to the profitability improvement in multiple steadily ongoing project including those close to the completion. In functional materials manufacturing segment, net sales increased slightly to 47.7 billion yen, but profit stayed flat at 7.1 billion yen. In addition to the demand decrease in semiconductor-related businesses, soaring fuel cost and raw material cost impacted to push down the profitability. Other segment is as shown here. Outline of contract of total engineering segment. Overseas new contract substantially recovered to achieve 696.3 billion yen. Domestic new contract remained at 127.6 billion yen with a pushback of investment decision of large project into the next fiscal year. The total of overseas and domestic was 823.9 billion yen. Major new contracts include gas oil separation unit in Saudi Arabia, chemical project in Thailand, floating LNG in Malaysia, and large-scale excellent plants in the US, which was posted in the fourth quarter. Outstanding Contracts As new contracts were in high level of over 800 billion yen, outstanding contracts as of the end of the fiscal year were 1 trillion 563.4 billion yen, up 300 billion from the beginning of the year. By business area, oil and gas account for 48% and RNG 24%. By region, on the right, Middle East account for 46%, America and others 20%, followed by Asia and Japan. As for major projects, those in Saudi Arabia, Malaysia, and the U.S., which were received in this fiscal year, were added to the contract of over 100 billion yen.

This shows you the consolidated financial conditions and cash flows. There were no major changes in financial conditions. Equity ratio was 55.7%, flat from the previous fiscal year. Operating cash flows recorded positive 110.7 billion yen, which substantially exceeded the net income thanks to the collection of debt after a resolution of dispute over the project completed in the past. Cash flows from investing amounted to negative 11.4 billion yen due to the acquisition of property, plant and equipment and digital related investment. Cash flows from financing amounted negative 61.2 billion yen due to repayment of interest-bearing liabilities, share buybacks and others. Cash and cash equivalents was 332.7 billion yen, increased by 44.7 billion yen from the beginning of FY 2022. The company's share of cash in joint ventures, which is off the balance sheet, decreased by 67.9 billion yen to 171.7 billion yen. I will explain our forecasts for fiscal year 2023. For the total engineering segment, New Order's target is 800 billion yen. Net sales? forecast is 800 billion yen as substantial sales increase is expected in this segment. Gross profit is almost flat of 6.8 billion yen and profit margin is 8.5%. We expect operating profit to be 38 billion yen with no change in SGA expenses. Ordinary profit to be 45 billion yen and profit attributable to owners of the parent is 32 billion yen. Dividends per share will be up 2 yen to 40 yen. An exchange rate used for this forecast is 133 yen to 1 U.S. dollar. Next, I will explain the forecast by a segment. In the total engineering segment, we can anticipate the steady progress of orders received in fiscal year 2022, and strong growth in both sales and profit are expected to continue from the previous year. Forecast of net sales is 743 billion yen and segment profit is 38.5 billion yen. A drop in profit margin is estimated after discounting the personnel cost hike following the improvement of employees' benefits and DX related depreciation and running costs as well as fixed cost increase. In the functional material manufacturing segment, profit margin fell in the fourth quarter of FY 2022, owing to the severe business environment, and this affected our forecast, which estimates net sales to be 50%. 50 billion yen flat from the previous year, and segment profit to decline to 5.7 billion yen. Others will be virtually flat. As for adjustment, we expect 2.1 billion yen increase in cost for segment profit, taking into account the higher fixed cost that is not allocated to contractors. such as personal expenses and R&D costs related to growth strategy. This concludes my explanation.

I'm Sato, Chairman and CEO. I'll talk about the perception of the market environment in the group's future direction. As for the market environment surrounding JGC Group in FY 2022, in total engineering business, in addition to the recovery in energy demand with an eye for the post-pandemic, for the diversified procurement of natural gas RNG with a backdrop of energy de-raspidification of EU, overseas oil measures, and oil and gas producing countries' state oil companies fully resume the capital investment. In Japan, with the continued clients' capital investment in life science sector, business has progressed steadily. Furthermore, in sustainability sector including hydrogen, fuel, ammonia and SAF, there have been progress in specific project in Japan and abroad. In functional materials manufacturing business, future uncertainty increased in global economy and semiconductor-related market in the second half of the fiscal year, but in general, clients' demand has been sustained firm. In total engineering business amid the booming market condition, orders in FY 2022 hit the second high in the record at 820 billion yen pursuing the seller selective order taking. As for the business results, the full-year target were achieved in net sales and profits in all levels due to the solid project management in ongoing project and the steady product demand in functional materials manufacturing business centering on FCC catalysts. Alloy improved substantially from FY 2021 at 7.8%. To summarize, FY 2022 was an extremely fruitful year for the GGC Group, with great progress over FY 2021 in terms of orders and business results. As for FY2023, global economy seems to be uncertain due to the prolonged inflation and monetary tightening policy. But in total engineering business, we expect that equally robust market as FY2022 will be sustained. On the other hand, in functional materials manufacturing business, markets of chemicals catalyst product and semiconductor-related product which have been supporting profit will be stalled, and on the profit front, temporarily, it will be a slightly severe year. In FY 2023, we make maximum effort to achieve the high-level order target of 800 billion yen following FY 2022 and the full-year business targets. In the results meeting of the first half FY 2022 in November last year, I talked about the two conflicting issues of the response to the present energy demand and acceleration of decarbonization as the two challenges that the world is required to find solutions for. Six months have passed since then, and now the energy industry is faced with three conflicting challenges, or three lemurs, of energy affordability for the reasonable energy price, energy security to supply the appropriate amount of energy with stability, and decarbonization.

Based on our technologies and ability of technological integration, I believe JGC Group is able to contribute greatly to solve this trilemma. Moreover, I think our group should serve as one of a few collaborators who can suggest realistic solutions not only for the trilemma, but also for our clients, countries, and any stakeholders who are urged to solve problems. Fiscal year 2023 is the third year, a midpoint of our medium-term management plan. As more than 800 billion yen of orders were secured in 2022, we feel our mid-term sales target of 800 billion yen is coming in sight. However, fulfilling the order target and business forecasts for FY 2023 is indispensable for us to achieve goals including operating profit of 60 billion yen, net profit of 45 billion yen, and ROE of 10%. In addition, according to the capital policy stated in the medium-term plan, we will make an appropriate and efficient allocation of resources in three areas, including working capital for the total engineering segment, the growth strategy investment, and shareholder return. By steadily implementing three key strategies in the mid-term management plan, which President Ishizuka will explain later, we are aiming to improve gross margin, expand profit, and achieve the goal of ROE of 10%. Also, we take an active stance to carry out the growth strategy investment. Currently, we have invested mainly in business incubations such as SMR and biomanufacturing. But toward the five-year of harvest after 2026, we are considering other ways of investment including M&A, which can realize profit increase in relatively short term. Shareholder return is positioned in an important place of our mid-term capital policies, and we recognize returning profits to shareholders is a key management issue. In our mid-term management plan, basic policy is to raise dividends per share by attaining the net income target of Thank you very much. While carrying out the capital policies, if excessive cash could be estimated based on the business outlook and cash flow situation, we would consider share repurchase in the future as well. JGC Group is now trying to make a qualitative shift from oil and gas-centered businesses to enter into the five business fields of energy transitions. To this goal, we will continue to implement key strategies of medium-term plan to expand profits and further improve our corporate value. Thank you for your kind support, and this concludes my presentation.

I am Ishizuka, President and COO. I will present the business overview. I will follow the table of contents. I'll talk about my perspective on the market environment of total engineering business of overseas and domestic. As Sato explained, moves for energy security and energy transition for decarbonization will continue. In particular, we have LNG project in Africa, Middle East, and Oceania. And what is prominent is that in the field of LNG liquefaction facility with a drive for decarbonization, we are observing the increase of E-drive liquefaction facility instead of gas turbine and downsizing to small and medium-sized equipment through the technological innovation. In North America, Middle East, and Oceania, projects related to hydrogen, ferroammonia, and sulfur are increasing. Let me explain this on the next slide. In Japan, life science and biopharmaceuticals business are very robust, and they have grown into the pillar in our domestic business. and in Japan, capital investment started to increase rapidly for hydrogen, ammonia, and SAF. To summarize, in overseas business, along with the business for energy transition and decarbonization, energy business with technological innovation will be progressing. In Japan, pharmaceuticals or non-oil and gas business will be the mainstay. And in both overseas and domestic front, sustainability-related hydrogen, ferroammonia, and SAF will finally take off. In the second half of this year and the next, and in the following year, more projects will be moving. I will talk about the specific orders target. As Taguchi explained before, this year we aim to achieve order target of 800 billion yen vis-à-vis the 820 billion yen in the previous year. The mix is overseas 620 billion yen and domestic 180 billion yen. Expected project include LNG project in Middle East, Africa and North America. LNG receiving terminal and geothermal power generation plant are planned. In North America, demand of chemical has been increasing and we have project for their facilities. In Asia, also chemicals, green hydrogen plant and hydrogen are expected project. In Japan, pharmaceutical, hospital, chemical, and onshore aquaculture are listed. In pharmaceuticals, in this year, we take on challenges in two large-scale vaccine plants and one bio-drug manufacturing facility. We aim to receive order of 100 billion yen with these three plants. I'll explain the progress in major project with photos. This is a final sail away ceremony of modules of LNG Canada in Qingdao, China. I participated in the ceremony on March the 7th. This photo shows that two modules are loaded on the special vessels and the ceremony was held in front of them. Even through the COVID pandemic, it was completed almost on schedule, and the clients commended our work. Pharmaceuticals have become the pillar in our domestic business, as mentioned. This is the API facility for small and mid-sized molecule drugs for Chugai Pharma manufacturing, which was completed in August 2022. This week, this facility was awarded the Facility of the Year 2023 by International Society for Pharmaceutical Engineering, ISPE, International Prestigious Society. As this is highly prominent owner, Chugai Pharma was very pleased. With this, we solidified our position as a leading EPC contractor for pharmaceutical manufacturing plants. This is Basra Refinery in Iraq. We are engaged in severe engineering, installation, and mechanical works. Due to COVID impact, slight delay occurred. But through engagement with clients, it is perceived that progress is almost in line. This is a renewable energy facility for Renova, 75,000 kilowatt mid-to-large size biomass power plant. Plant is completed and currently commissioning is underway. And the delivery to a client will be in next month. As for functional materials manufacturing business, it was already explained by Sato. Commodity chemicals and semiconductor-related products are stalled, and we are striving to offset the dip with other products. But the market condition of the next year onward will be brisk, and as I'll explain later, we'll continue investment. And the demand for silicon nitride has been firm, so I'll explain this later. We'll continue large-scale investment. Net sales in FY 2022 were 48 billion yen and will achieve 50 billion yen in FY 2023. BSP 2025 Progress and Outlook of the Mid-Term Plan Taguchi explained the results of FY 2022 and the focus for FY 2023 before. In our forecast for FY2023, net sales are 800 billion yen, operating income is 38 billion yen, and net profit is 32 billion yen. Our target for FY2025 for net sales, operating income and net profit are 800 billion, 60 billion and 45 billion yen respectively.

You may think that operating profit of 38 billion yen for FY 2023 seems a little low, but I'd like you to understand that our company values human resources very highly, and we improved staff treatments by 10% in December last year. However, we cannot claim this cost to the ongoing projects. Therefore, this personnel cost increase and fuel cost in manufacturing pushed down the operating profit. Without those temporary costs, Operating profit can be calculated around 45 billion yen instead of 38 billion yen. And as we move on to 2024 and 2025, I think we can aim the mid-term target of 60 billion yen. Also, when we receive new orders, we will be able to shift those costs onto the new prices, so I think we will be able to achieve mid-term targets. There are three key strategies in our medium term management plan. First one is a transformation of EPC operations. The second is an expansion of manufacturing business for high performance functional materials. And the third is an establishment of future engines of growth. Now, I'd like to explain those strategies one by one. First, let me discuss the transformation of EPC. As you may see, our new order target for 2023 is on very high level, and the challenge given to us, management, is how to achieve such high goals. For this purpose, we are focusing on three approaches. One is to be selective in receiving orders. Projects quality, clients and partners are very important factors on which we conduct a risk analysis. And in addition to those factors, we also analyze whether we can efficiently utilize our resources. Second approach is expanding capacity. we established new operating center, JGC India, which I will explain later. Third is the digital project started in April. After two years of development, EPC DX has almost completed and will be implemented to the projects for improving efficiency. In order to expand EPC business into growth markets, JGC Asia Pacific launched its operations in full scale and is carrying out our overseas policies, such as receiving contracts of industrial infrastructure and entering into new areas. In the domestic market, we will continue our efforts on businesses in life sciences such as vaccination and pharmaceutical projects. New topics are written at the bottom, and this picture was taken at the opening ceremony of JGC India in Chennai on April 27. JGC India is expected to work as operation center for Middle East. We'd like to increase the number of employees to 1,000 by 2030 from the current number of 200. Next page is about the expansion of high-performance functional materials manufacturing. I think I have covered most of it already. Despite the cooling off of semiconductor-related market, we will continue our capital investment as scheduled, especially in electric vehicle market where the demand is very strong. We will invest in silicon nitride substrates for power units for EVs to increase production. There is a picture at the bottom of the page which shows the existing plant. But adjacent to this facility, we bought 12.5 hectare land last year. We will invest 10 billion yen in total to build facilities at this site to double the current production of silicon nitride substrates in 2025. The demands are growing farther for the future. As for the establishment of future engines of growth, we see the markets of hydrogen and ammonia, SAF, and waste plastics moving forward to realization and toward EPC. Regarding SAF, we established the joint venture with Cosmo Oil and Cosmo Energy and launched the project to SAF production. However, its production capacity is only 30,000 kiloliters, accounts only a few percentage of government's target volume of 1.7 million kiloliters. Therefore, oil companies are now planning to build bio-alcohol-based SAF production projects instead of waste oil-related one. Technically speaking, Alcohol requires a dehydration system which will be large in size. One system costs about 50 billion yen and some of them are already scheduled. As for the gasification of waste plastics, we started the project with Iwatani Corporation and Toyota Tsusho Corporation in Nagoya metropolitan area. There is another photo of plant here. In Niigata, we received a pilot plant of blue hydrogen and ammonium. And this is a SAF plant I mentioned earlier. In next page, you see more SAF projects. Considering the future energy, JGC concluded the alliance agreement with Toyo Engineering Corporation for feed and EPC services for domestic SAF plants in order to respond to the government target of 1.7 million kWh, which I mentioned earlier. A picture in the bottom shows a signing ceremony of the pilot plant of green ammonia in Namie Town in Fukushima Prefecture. Receiving government subsidy, Asahi Chemical will provide hydrogen and JGC will produce ammonia for this ammonia project. Because it is a green energy, there is no supply during night. How to control this situation is our challenge, and we will develop new control systems. Next is the final page, and it's about the growth strategy investment. In our medium term management plan, 200 billion yen is allocated for investment. We have assessed investment and made decisions in 2021 and 2022. But there is a kind of time lag between decision-making and payment. For example, we decided to invest 32 billion yen for projects such as small modular reactors that Mr. Taguchi explained earlier, and a biomanufacturing program. But most of the payments for those projects will be made in 2023 or later. Capital investment in SAF development is the same. I would say that we have already decided the investments for about 100 billion yen. For the expansion to new business areas and effective cash management, M&As are also studied, even though I cannot disclose information.