Kawasaki Heavy Indu New

My name is Yamamoto. Thank you very much for participation. Now I would like to present the financial highlights. As the company announced today at 11.30 at the Tokyo Stock Exchange and on the company website, the third quarter performance was significantly better than plans in both sales and operating profit driven by strong motorcycle and engine business. The shipbuilding joint ventures incurred a recurring loss again as it did in the second quarter due to external factors such as steel price and foreign exchange rates. However, we believe the company is poised to revise the operating profit upward and maintain the recurring profit in line with the previous announcement. The entire group is determined to deliver the numbers even better than the ones we present today in the upcoming fourth quarter. This is the overview. Now we will explain more from page 3. Page 3, please. Consolidated results for the third quarter. The third quarter's year-to-date net sales was 1 trillion and 38.7 billion yen. The operating profit was 39 billion. The recurring profit was 21.3 billion yen and the net income attributable to owners of a parent was 7.2 billion yen. The three-month operating profit grew by 18.6 billion yen. The third quarter added 10.2 billion yen to the recurring profit and 2.7 billion yen to the net income because the shipbuilding or joint venture business incurred losses. The nine-month weighted average exchange rate of the Japanese yen from April through December was 6 yen lower than last year. The value of U.S. dollar-based transactions was $1.1 billion. Page 4 Consolidated Results by Segment This page shows orders received, net sales, and operating profit by segment. The aerospace system is continuing performance improvement as passenger demand is coming back. In the meantime, the motorcycle and engine, which started as Kawasaki Motors last October, dramatically grew in sales and profit thanks to strong demand in the outdoor leisure market in the developed countries. Precision machinery and robot business also recorded higher sales and profit from wafer transfer robots for semiconductor manufacturing equipment. The rolling stock business spin-out, Kawasaki Railcar Manufacturing Company, is steadily improving its profit. As a result, the total net sales was 1 trillion and 38.7 billion yen, an increase of 6.2 billion yen year-on-year. The OP was 39 billion yen, an increase of 42.7 billion yen. Page 5 Income statement. Please look at table for details. As the net sales grew considerably in motorcycle and engine business, the sales costs grew accordingly, as you see in the box number 1. The Japanese yen has been cheaper than the previous year, but the company had large exposure to U.S. dollar denominated liabilities. This is the reason for exchange loss in the non-operating expenses due to conversion of U.S. dollar denominated liabilities. I would like to comment on equity and loss of unconsolidated subsidiaries and affiliates. As I mentioned, the steel price continued to increase, while the renminbi appreciated against U.S. currency. The profitability of the ships weakened because the ships had been priced in the U.S. dollar contractually. The rise in material costs meant higher production costs of marine equipment. For these factors, the company put up a provision for 58% more ships than the second quarter. As a result, the equity in loss of unconsolidated subsidiaries and affiliates was 15.1 billion yen. The steel price hike created a big loss this year, but the robust motorcycle business covered the loss. The recurring profit improved by 21.3 billion yen. The steel price is already beginning to fall in the Chinese market in Q4. We will keep close watch on still price movement. Page 6. Next, I would like to explain recurring profit and incomes below. As I said in the last slide, the equity in income of affiliates deteriorated. However, the equity in loss of affiliates does not contribute to reduction of tax burden. This is why the large tax expense is posted. As a result, the net income grew by 2.7 billion yen to 7.2 billion yen from 4.5 billion quarter-and-quarter. But the year-on-year change is a positive 21.2 billion yen due to reversal of deferred tax assets. Page 7. I will explain the factors contributing to changes in profit. Most production businesses, such as motorcycle engines, and precision machinery and a robot made by a big contribution to ourselves. The aerospace system business is beginning to show profitability improvement as the jet engine maintenance costs, which were a major burden last year, were decreased. Please refer to page 8 for more details by segment. I will skip page 8. Page 9. Balance Sheet. As indicated by Notation 1, the cash and deposits decreased as a result of a repayment of interest-bearing debt. As you will find in Notation 2 and 3, some adjustments were made across accounts because the company applied a new accounting standard for revenue recognition. Page 10, Liabilities and Net Assets in the Balance Sheet. Liabilities and net assets changed because the company reduced trade payables in aerospace and other segments, as you see in notation number 1. This resulted in increase in interest-bearing debt, though this is a normal business cycle and the debt level is as usual as other third quarters before. At the same time, the net DE ratio went up 13% to 149% from the single quarters, 136%. We don't think this is a problem in particular, considering that it is in the fourth quarter that the company receives money from many of the customers. Still, we are aware that there is a gap from the company's reference DE ratio, which is 70 to 80 percent, so we will continue to speed up the collection of trade receivables while controlling the inventory assets so that we can improve asset efficiency. Notation three indicates decrease in the shareholders' equity. As explained at the second quarter earnings report, this does not affect cash flow. I would appreciate your understanding. Page 11 shows cash flows. The cash flow from the operating activities increased by 700 million yen year-on-year. The cash flow from investing activities deteriorated year-on-year because last year had proceeds from sale of fixed assets. Excluding these special factors, this year is not very different year on year. The total free cash flow was negative 182.5 billion yen, down by 20.3 billion. However, the company expects collection of considerable trade receivables from operating activities in the fourth quarter and plans to turn the free cash flow positive this fiscal year. Page 12. For your information, This page shows cash flows over the last 10 years. Page 13, earnings forecast for FY 2021. Motorcycle and engine business has made 29.6 billion yen in operating profit in Q3 earnings. This segment is expected to make a big full-year profit improvement. Considering loss from shipbuilding joint ventures and equity loss in affiliates, as well as expected additional defense orders in the aerospace system business. On the other hand, now I would like to announce new forecast. The forecast of orders received is 1 trillion 530 billion yen, up 70 billion yen from the last forecast. The net sales forecast is unchanged at 1 trillion 550 billion yen. The new OP forecast is 46 billion, up 6 billion yen. The recurring profit and net income are unchanged at 22 billion and 15 billion yen each. The revised foreign exchange assumption is $1 is 114 yen, meaning Japanese yen will be 2 yen cheaper against a dollar. Next, I will explain segment by segment. Page 14. Forecast for FY 2021 by segment is shown in the table. The deep and operating profit in energy solution and marine engineering is offset by the OP growth in motorcycle and engine, which enjoys robust business in motorcycles and utility vehicles for off-road activities. I will explain more details in segment-specific slides. Page 15. Aerospace Systems This slide shows performance of the third quarter of FY 2021. There are more orders received from Boeing, but the total orders received decreased due to a decrease in component parts for commercial aircraft jet engines caused by the application of a new accounting standard for revenue recognition. The net sales were down due to slow business with the Boeing and the Defense Ministry. Furthermore, the application of the revenue recognition accounting standard had an effect. The operating profit grew significantly due to improvement in profitability of commercial aircraft jet engines for Boeing. The full-year forecast was reversed upward, anticipating order growth with the Defense Ministry. Sales and operating profit are unchanged, even in light of uncertainty due to new Omicron variant and Boeing's production cut because of a change to Japanese yen's exchange rate assumption and other factors. Page 16. This slide shows orders received in net sales by aerospace and air engine separately. You will also find the number of aircraft component parts sold to Boeing and the number of jet engine components parts sold. Page 17. Aerospace assistance. This page shows the quarterly trend of net sales and operating income. Page 18. This page describes market overview and the company's focus areas to achieve the financial targets. There is no substantial change since last announcement. The company continues to position aircraft engine business as the core area to generate profit by reducing traditional costs. The company reviews the fixed cost structure theory to meet the changes in business environments. Page 19, the rolling stock segment. This slide shows the performance of the third quarter of FY 2021. Compared to the same period last year when the company enjoyed big orders for Shinkansen, this year saw fall in orders received. The sales is a little down, but the OP improved thanks to better profitability of overseas projects. As the COVID-19 impact subsided, the full year forecast remains at the same level as the last time. Page 20. This page shows orders received and the net sales in domestic in Asia vis-a-vis North America. For your information, we included sales from high margin after sales service and an update on M9 project for Long Island Railroad in the United States. Page 21. This page shows the quarterly trend of net sales and operating income for your information. Page 22. Like the aerospace assistance, the market overview of the rolling stock has not changed since last time. M9 projects in North America incurred a loss in a recent year. 92 cars under the base contract have been delivered. Optional trains are now under production and will be delivered in the second quarter of the next fiscal year. Page 23, Energy Solution and Marine Engineering. You will find the performance of the third quarter of FY 2021. Orders received went up due to orders for domestic municipal waste incineration plants, LPG ammonia carriers, and other projects but sales and profit were both down due to a decrease in power plants and raw material cost hike. The full-year OP forecast was revised downward by 3.5 billion yen, as the net sales are likely to go down due to the timing shift of a project in energy system and the steel material cost drop. will create loss in domestic ship and offshore structure business in the fourth quarter. Page 24. This page shows orders received in the net sales by a subsegment of energy system and plant engineering and ship and offshore structure. Page 25. This page shows quarterly trend of net sales and operation income. Page 26. the market overview and order trend of this segment. The top priority is to secure more orders. As you see in this slide, the company won two successive orders for waste incineration plants in the third quarter. There is a stronger renewal demand. We will aggressively approach these customers to win even more orders. Also, the companies are trying to establish a leading position in the decarbonization field in the mid- to long-term. I reported in a Group Vision Progress presentation last December that we started a discussion with RWE, a large German power company, regarding the world's first demonstration of 100% hydrogen power generation by a 30-megawatt-class gas turbine. Here in Japan, we delivered Save Oil, a cogeneration system, which is operational and burns by-product hydrogen. We will continue to contribute to the carbon-neutral goal of the world as a leading company in the hydrogen supply chain. Page 27, Precision Machinery and Robot Segment. The slide shows the performance of the third quarter of FY 2021. Hydraulic components for construction machinery and various robots for semiconductor manufacturing equipment are strong in driving net sales and operating profit year on year. Hydraulic components for China are likely to soften in the fourth quarter as the Chinese property building boom slows down, dragging the construction machinery market. The robot business will grow net sales thanks to the thriving semiconductor market but the rising of parts procurement cost and supply chain disruption may create adverse pressure on the cost structure. Therefore, the full year net sales of this segment were revised down by 5 billion and operating profit was revised by 3 billion yen. Page 28. This page shows orders received in net sales of hydraulic components in the system and robotics. We added sales data of hydraulic components to China and sales of robots by segment for your information. Page 29. This page shows the quarterly trend of net sales and the operating income. Page 30. Here is market overview and specific efforts of this segment. Page 31. Motorcycle and engine. This slide shows the performance of the third quarter FY 2021. Sales grew in motorcycles and general-purpose engines not only for North America, but also for Europe and Southeast Asia. The profit was also boosted by depreciation of Japanese yen. Regarding the full-year forecast, the operating profit was revised to 40 billion yen, up by 9 billion yen from the last announcement. In light of lower parts procurement risk, price increases, less sales promotion cost, and foreign exchange assumption change. Page 32. This page shows net sales and operating profit by subsegment, namely motorcycles for developed countries, motorcycles for emerging markets, utility vehicles, ATVs, and the PwC, and general-purpose gasoline engines. There is information regarding wholesale of motorcycles by country. Page 33. This page shows the quarterly trend of the sales and the operating income. Page 34. Here is market overview for motorcycle and engine segment. Page 35. Shareholder return. The full year dividend remains 30 yen for a full year. No change since last announcement. There is lingering uncertainty in business environment, but the company is determined to do everything to improve its profit. Page 36. I would like to share four project topics today. The first topic is about motorcycle segment, a segment that is driving the earnings of the company. We have Japan's top market share in 251cc and over a class in terms of the cumulative unit numbers for four years. This fiscal year, Ninja ZX250R received Japan Motorcycle of the Year Award. Bimota, an Italian luxury handmade motorcycle company, launched KB4 with a Kawasaki engine in its latest model. These examples demonstrate our brand and product power are getting stronger, and we will actively seek more opportunities for collaboration and alliance We will continue to capture the growth potential of motorcycles in the world market to acquire more market shares while making active investment in new four-wheel vehicles models for the future growth. Page 37. This page is an introduction to wafer transfer robotics. Semiconductor shortage is disrupting production and supply of cars and other products, causing a serious problem to the people's living and corporate performance. Our company has the world's top share in the wafer transfer robotics market. Increased production of a robot is essential to production of more semiconductors. To alleviate the semiconductor shortage problem, the company is now operating at full capacity. We want to meet the market needs by offering a wide selection of semiconductor robotics. Page 38. The next topic I would like to introduce is hydrogen. Hydrogen is expected to become the growth pillar in the mid to long term. At the end of last year, the world's first liquefied hydrogen carrier, Suisse Frontier, sailed from a COVID port to Australia. liquefied hydrogen had been uploaded before the departure. The objective was to demonstrate viability of loading and maritime transport of liquefied hydrogen, structural integrity of tanks and piping. The carrier arrived at Adelaide port on January 20 after three weeks of voyage. The pilot project successfully verified performance The company will continue to build the hydrogen supply chain from production, storage, transport to usage as hydrogen energy in order to contribute to the carbon neutral society of the world. Page 39. This is the last project topic. It is PCR viral testing service. Municipalities are operating free PCR test centers to cope with the spread of Omicron variant. The test demand is growing rapidly. Our company started a free PCR test service in Setagaya and Suginami wards in Tokyo. Just yesterday, the same service started in Kobe City in Hyogo Prefecture. We are planning to roll out the test service to other prefectures. Just for your information, you can book a PCR test by visiting our company's website Click the corporate banner at the bottom for quick booking. We are also focusing on test services for travelers at airports to help reopening of international traffic. The company is already operating two test sites for outbound travelers at Kansai International Airport. We are now able to issue COVID negative certificates in three hours at the shortest. We are planning to roll out the service to more international airports to facilitate reopening of international travel. Inbound travelers are now required to isolate themselves for a certain period of time on arrival in Japan. We want to offer PCR test service to inbound travelers so that their isolation requirement will be lifted and more people will travel internationally. From page 40 and onward, I attached reference information. In the appendix, you will find capex, depreciation and amortization, R&D expenses, and the number of employees. This is the end of my presentation. Thank you for listening.