Kawasaki Heavy Indu New

I am Yamamoto. Thank you for joining us today. As we announced at 11.30 on November 9 in our website, the financial result for the second quarter FY 2021 showed that sales and operating profit were in line with our initial forecast. But as for the recurring profit and items below, due to the recent rise in steel cost, shipbuilding joint ventures incurred losses, and for the three months from July to September, they turned to losses. As for the full-year forecast, the recurring profit and items below were revised down from the previous announcement. Dividend for shareholders remains unchanged from the previous announcement. By achieving further improvement, every member of the company will continue to make utmost effort to achieve the upside from the announcement this time. This is the overview. And from page 3, let me explain in details. Please turn to page 3. In the second quarter FY2021, net sales were 681 billion yen. Operating profit was 20.4 billion yen, recurring profit was 11 billion yen, and net income was 4.5 billion yen. In the three months of the second quarter alone, operating profit was 5.2 billion yen, but recurring profit was minus 2 billion yen, and net income was minus 5.3 billion yen. This is, as mentioned before, due to shipbuilding joint ventures in China, and I will elaborate on this later. As for the weighted average exchange rates from April to September for six months, as shown here, yen depreciated to a dollar by 4.7 yen a year, and the U.S. dollar-based transaction was $0.76 billion. Please turn to page 4. Orders received, net sales and operating profit in each segment are shown in the table. Aerospace systems recovered substantially with a flight demand recovery, but still were loss-making. Motorcycle and engine achieved substantial increase both in sales and profit due to strong demand for outdoor leisure in developed countries. As well in the first quarter, the recoveries in these two segments were notable. and entire sales increased by 23.7 billion yen year-on-year to 681 billion yen, and operating profit increased 42.2 billion yen to 20.4 billion yen. Page 5 for Income Statement For details, please refer to the table. With substantial sales growth in motorcycle and engine, sales costs increased as shown in No. 1. As for no operating income and expenses, yen in quarter end rate depreciated compared to the previous year, but due to liabilities denominated in U.S. dollar, translational loss on foreign exchange was posted. As for equity income of unconsolidated subsidiaries and affiliates, due to still material cost surge, shipbuilding JVs in China reviewed the future shipbuilding cost of order received. ships and set aside the provisions, and as a result, the equity income of the entire company worsened substantially to minus 7 billion yen. As such, due to steel price surge, large loss was incurred in this quarter. We are negotiating the steel price, and in some areas, price has started to fall rather than staying flat. But with a recent drastic price increase, profit may change depending on the future development. If the steel price goes down, profitability improvement is expected, with a shipbuilding contract where the latest steel cost is reflected, and also a provision already posted might be reviewed. We will continue to monitor the situation closely. Please turn to page 6 for Income Statement from Recurring Profit to Net Profit. Let me explain the recurring profit and below. Extraordinary income by the sales of the land in No. 4 was posted in the first quarter. Impairment loss in No. 8 is about the fixed assets acquired at Sakai the Shipbuilding Works for the renewal of aged facilities. Income taxes were 6.9 billion yen, which was a considerable amount compared to the income before tax, 12.4 billion yen. This is mainly because the aforementioned equity loss in shipbuildings is not regarded as loss in tax calculation. As a result, net income was down from 9.8 billion yen in the first quarter by 5.3 billion yen to 4.5 billion yen. Please turn to page 7. Operating profit increased 42.2 billion yen year-on-year. Mass production businesses including motorcycle and engine and precision machinery and robot contributed and they account for 70% of the total. In the aerospace business, engine maintenance costs, which were the major burden in the second quarter FY2020, decreased, and the profitability of the business is showing the improvement. Details by segment is shown on page 8 for your reference. Please turn to page 9. As for the change in total assets as shown in number 2 and 3, Due to the change in accounting standard for revenue recognition, decrease and increase corresponding to each other were posted. As for the decrease in trade receivables, in addition to the change in accounting standard, progress in collection of receivables in energy solution and marine engineering and motorcycle and engine also contributed. Please turn to page 10 for the balance sheet of liabilities and net assets. As for the change in liabilities and net assets, as shown in No. 1, trade payables decreased mainly in airspace systems and precision machinery. As a result, as shown in No. 2, interest-bearing debt increased, but as shown in the chart, it has normalized the situation of the second quarter. With this, net DE ratio worsened 17% from 119% in the first quarter to 136%, almost at the level of the previous year. Compared to the targeted 70% to 80%, we still have gap, and we will continue to strive to improve asset efficiency by promoting trade receivables collection and controlling the inventory. Page 11 for the cash flow statement. Operating cash flow improved 5.9 billion yen year-on-year, as shown in No. 1. Compared to the previous year when the business was affected by COVID-19, inventory increased along with the sales growth in motorcycle and precision machinery and robot. But in this first half, we were able to post income. Investing cash flow worsened compared to the previous year when sales of fixed assets were posted. But excluding these special factors, it was almost flat year on year. As a result, free cash flow worsened by 8.6 billion yen year-on-year. For the remaining period, by promoting the improvement of asset efficiency, we are ensured to achieve positive free cash flow in this fiscal year. Page 12. Cash flows of the last 10 years are presented for your reference. Page 13. Earnings forecast summary for FY 2021. Forecast of operating profit was kept unchanged from the previous announcement, but recurring profit and below were revised down, as shipbuilding unconsolidated subsidiaries posted provisions for loss on shipbuilding due to sale price surge and appreciation of renminbi against U.S. dollar. Orders were also revised down, reflecting the tender results in energy and environment segment in the first half, and orders forecast in the second half. As a result, orders were revised down by 50 billion yen from the previous forecast to 1 trillion 460 billion yen. Net sales were revised up by 20 billion yen to 1 trillion 550 billion yen, and operating profit remained unchanged as 40 billion yen. Recurring profit was revised down by 6 billion yen to 22 billion yen and net income was revised down by 4 billion yen to 15 billion yen in this announcement. Exchange rate assumption for this forecast is 112 yen to a dollar with yen depreciation of 3 yen per dollar compared to the previous forecast. Now let me explain by segment. Page 14. Breakdown by segment is shown in the table. Sales and profit decline of aerospace systems is offset by the sales and profit increase in motorcycle and engine with the strong demand for motorcycles and off-road wheelers and robot for semiconductor production equipment in strong semiconductor market. I'll explain other details by segment. Page 15 for aerospace system segment. Results of the second quarter FY 2021 are as shown on the slide. Due to the change in accounting standard for revenue recognition, Orders and sales decreased year on year, but orders increased due to the increase for Boeing and Ministry of Defense. However, sales decreased due to the decrease for Ministry of Defense and Boeing. Profit improved substantially due to improvement in profitability for commercial aircraft jet engine despite the revenue decrease. As for the full-year forecast, despite the sales and profit increase due to the change in exchange rate assumption for the depreciation of yen, mainly due to the refraction of reduced production of Boeing 787, sales were revised down by 20 billion yen, and operating profit was revised down by 4.5 billion yen from the previous announcement. Page 16. This slide shows orders and sales of aerospace technology. and the number of aircraft component parts to Boeing and the engine component parts for your reference. Page 17. This slide shows the quarter sales and operating income showing the past trend for your reference. Page 18. This slide shows our market overview and the specific efforts to attain the target. They are mostly unchanged from the previous announcement. The earnings improvement in air engine business will continue to be the prime issue. We will reduce the manufacturing cost as well as reviewing the fixed cost structure to be in line with the environmental changes. Page 19 for Roaring Stock Segment Results of the second quarter FY 2021 as shown on the slide. Sales slightly decreased year-on-year, but due to the profitability improvement in overseas projects with Less impact by COVID-19, profit improved. As for the full-year forecast, orders were revised down by 20 billion yen to 50 billion yen due to the deferral at domestic project, but sales and profit were kept unchanged without material changes. Page 20. This slide shows orders and sales of domestic and Asia and North America. And appendix shows the sales in profitable countries after-sales service, which has been focused, and the progress of M9 project for Long Island Railroad in the United States, for your reference. Page 21. This slide shows a quarterly sales and operating income for your reference. Page 22. As for market overview, as was in the aerospace business, there is no major change from the previous announcement. As for M9 project in North America, where loss was incurred in recent years, delivery of 92 cars in the base contract was completed. Optional trains which are being produced now are scheduled to be delivered in the second quarter in the next fiscal year. And although it is not described in the slide, in October 2021 in the United States, derailment occurred with the 7000 series train which is supplied by our consolidated subsidiary, Kawasaki Railcar Inc., and maintained and operated by UMATA, Washington Metropolitan Area Transit Authority. The cause of this incident is investigated by NTSB, National Transportation Safety Board, and following the request by UMATA and NTSB, we are cooperating with the site investigation. But as of today, the cause was not identified yet. For the early return of 7000 series train to commercial operation, UMATA filed a new proposal on the train inspection to WMC, Washington Metro Rail Safety Commission, which supervises the operation of UMATA. From November 8, UMATA started the operational test of 7000 series for the resumption of their operation. Teradari Solution, our group, will continue to cooperate in the investigation as a manufacturer. Page 23 for Energy Solution and Marine Engineering Segment. Result of the second quarter FY 2021 as shown on the slide. Profit decreased due to less profitable project compared to the previous year and the raw material cost increase. As for the full year forecast, After examining tenders and contracts of gas turbines and LNG plants in energy segment and waste incineration facilities, we revised down orders forecast by 70 billion yen to 330 billion yen. Sales and operating profit do not change much from the previous announcement, and they are kept unchanged. Page 24 This slide shows the orders and sales breakdown. of energy system and plant engineering, and ship and offshore structure for your reference. Page 25. This slide shows quarterly sales and operating profit for your reference. Page 26. Market overview of this segment is described. As for specific efforts, top priority is placed on the recovering orders. As shown in the slide, we received consecutive orders of LPG carriers which will carry ammonia. As ammonia demand will continue to grow, we will promote sales activities to receive more orders. In the mid to long term, we established a leading position in the decarbonization field. In August 2021, NEDO Green Innovation Fund was awarded for the establishment of a large-scale liquefied hydrogen supply chain and the Marine Hydrogen Engine. I'll explain their detail with other slides later. For the Marine Hydrogen Engine development, we set up the joint venture with leading marine engine manufacturers, Yamaha Power Technology and Japan Engine to promote the use of hydrogen-fueled ships in the future. Page 27 is for the Precision Machinery and Robot Segment. Results of the second quarter FY 2021 as shown on the slide. Hydraulic components for construction machinery and various robots, mainly for semiconductor, were robust and sales and profit increased year-on-year. As for the full-year forecast, with the demand growth in SPE robot in the strong semiconductor market and the growth in hydraulic components for construction machinery, sales forecast is up 10 billion yen. and profit is up 2 billion yen compared to the previous announcement in this segment. Page 28. This slide shows orders and sales of hydraulic components and robotics. And sales of hydraulic components to China and sales of robots by segment are shown for your reference. Page 29. This slide shows quarterly sales and operating profit for your reference. Page 30. As for the market overview of this segment, in the previous results meeting in August, I said that we monitor closely as it is reported that some construction machinery companies in China started inventory adjustment, but high-level demand in China continued lately. And as demand outside China continued to be robust, sales in hydraulic components forecast is up, by 5 billion yen from the previous announcement. As for robots, demand especially for SPE has been expanding to resolve the global semiconductor shortage. As for specific efforts, let me introduce open innovation in robotics, K-ADON. K-ADON is a product of other companies that enhance the function of Kawasaki Heavy Industries robots. Due to guaranteed connectivity, customers can save the verification cost and time for connectivity. On the sales front, synergy with peripheral device companies is also expected. As a first step, six products made by five companies, including Keyence, were certified as K-add-on. In future, 20 to 30 products of 10 to 20 companies a year will be certified as K-add-on. to enhance the customer's convenience. Page 31 for Motorcycle and Engine Segment Results of the second quarter FY 2021 as shown on the slide. Not only the off-road motorcycles and four-wheelers for North America, but for Europe and Southeast Asia also increased and sales and profit increased year-on-year. As for the full-year forecast reflecting the strong demand in developed countries, following the previous announcement, this time also both of sales and profit were revised upward substantially. Downside risks in sales including increasing in logistic cost, raw material cost surge, supply chain disruption are incorporated to some extent in the profit side and we assume there are possible changes depending on the future condition. Page 32 This slide shows the orders and sales of motorcycles for developed countries, for emerging market, for wheelers, PwC, and general purpose engines, and the whole sales of motorcycles by country are also shown for your reference. Page 33. This slide shows the quarterly sales and operating profit for your reference. Page 34. Market overview of motorcycle and engine is described on this slide. Page 35, for shareholder return. We revised down the net income, but the full-year dividend is kept unchanged at 30 yen. Business environment continues to be uncertain, but by implementing measures by the entire company, we will improve the profit. Page 36, I will introduce the project topics. Let me go through four topics. First, Let me explain the commercial demonstration of the hydrogen supply chain which was awarded by NEDO in August 2021. This includes a project of commercial demonstration of the liquefied hydrogen supply chain and development of large-scale and efficient facilities for the hydrogen liquefaction plant. Japan Suiso Energy, wholly owned subsidiary of Kawasaki, Eneos, and Iwatani, will conduct a large-scale commercialization demonstration project to produce tens of thousands of tons of hydrogen per year. And we plan to supply facilities necessary for the project, including 16,000 cubic meter class liquefied hydrogen carriers and 50,000 cubic meter class liquefied hydrogen onshore storage tank. 220 billion yen subsidy will be provided as government support. With this, we made a major step forward to achieve a hydrogen supply cost of 30 yen per normal cubic meter in 2030, a milestone to realize the hydrogen society. Page 37. Image of the project shown on the previous slide is shown above. Initiative for the hydrogen society by Green Innovation Fund is not limited to the establishment of supply chain where the government support of 220 billion yen was provided. As shown below, In October, government support of 21 billion yen was awarded for marine hydrogen engine and MHFS, Marine Hydrogen Fueled Engine and Systems. And in November, 17.5 billion yen was awarded from Green Innovation Fund for co-op technological development of hydrogen-powered aircrafts. We also produce and distribute hydrogen gas turbine, which uses liquefied hydrogen as fuel well. In mobility, we develop the hydrogen engine motorcycle, and the construction of combined cycle power plants with hydrogen fuel is within the scope. They constitute the steady steps to realize the hydrogen society. Due to time constraint this time, I just briefly walk you through, but details will be explained in the Group Vision Progress Report meeting in December. I expect your participation in the meeting. Page 98. Let me talk about a future policy of PCR business. With the progress of vaccination, demand for PCR testing has been declining. To restore the free economic activities with countermeasures for infection, gradual relaxation of restriction is expected based on the combination of vaccination and PCR viral testing. Under such circumstances, we expand vaccination our testing services leveraging our strengths of short time, mass processing, and high accuracy. To be more specific, in addition to the monitoring testing which we already service, we will provide screening testing for essential workers, corporate customers, and educational institutions. With the recovery of international traffic, we will expand the testing services at the airport for travelers. Our strengths is that speedy testing within 80 minutes from medical interview to specimen collection to test results, and that enables the travelers to complete or process up to negative certificate if only they come to the airport three hours in advance. PCR test center was already launched at Kansai International Airport and started services, and it will be deployed in other airport as well. Currently, visitors are required to be quarantined, for certain period after arrival, but by applying PCR testing service to inbound travelers, we would contribute to accelerate the international traffic by minimizing the quarantine period. Page 39. This slide explains the joint venture for tunnel borrowing machine, Underground Infrastructure Technologies Corporation, equally invested by Hitachi Zosen, starting October 1st. To ensure order intake of domestic project and increase order intake of international project, we thought it necessary to enhance resources and technology through alliance rather than going on our own. In future, we'll work to expand alliances with other companies as well for the further growth. Page 40. This slide explains the investment for production expansion in North America and which was explained in the business policy meeting of Kawasaki Motors in October. Markets of off-road and turf were expanded drastically in the upcoming 10 years, and let me briefly explain each background. First, as for the off-road four-wheeler market, the market expanded from 2015 to 2019 from 560 billion yen to 700 billion yen with a CAGR of almost 6%. from 2020 to 2021 as the leisure under COVID-19, the market expanded further. As for the recent market trend in the leisure use, demand for ATV, buggy type, has been shifting to more general-purpose off-road wheelers, side-by-side type, which we have focused on. For the UTT type, demand for agriculture and livestock farming has been expanding, and part of pickup truck demand whose annual sales is 3 million units, will be shifting to side-by-side type. Unit price in both applications will rise due to the shift to larger and higher-end models, and that will accelerate the market growth as shown in the chart. Next, let me explain turf business market. Steady growth was sustained supported by the population growth and robust growth in housing stocks in the U.S. market. U.S. demographic pyramid shows dense population in 20s and 30s, which will support the stable growth in the future. And increasing trend is observed for relocation to suburban areas to living house with garden under COVID-19 pandemic. Due to this, the market is expected to grow to 1 trillion yen level in 2030. Backed by this forecast, we decided to invest 30 billion yen to expand production. By implementing the strategy steadily, we will improve corporate value of the entire group. Page 41 and onward shows CapEx depreciation and amortization, R&D expenses, and number of employees for your reference. This concludes my presentation. Thank you very much for your attention.