Kawasaki Heavy Indu New

My name is Yamamoto. Page 1. As we disclosed at the Tokyo Stock Exchange and through our website at 11.30 today, the revenue and profits grew significantly for the third consecutive quarter, with a quarterly net profit hitting the record 52.5 billion yen. and this quarter delivered ¥80.8 billion in business profit. The strong performance was driven by recovery of passenger demand in aerospace systems, continued outdoor demand, and successful price pass-through of rising cost mainly in power sports and engine, which is a new name for the former motorcycle and engine segment. The FX assumption of a U.S. dollar was changed from 140 yen to 130 yen in the new full-year forecast. The new projection forecasts business profit will reach 86 billion yen, up by 10 billion from the November forecast, and the net profit will be 54 billion yen, up by 9 billion, thanks to robust power sports and engine, and better profitability in aero engine. In spite of one off-dip in profit in precision machinery and robot, This is the summary of the financials. From page 3, I will explain more details. Page 3 Consolidated results for the third quarter FY 2022 The third quarter of FY 2022 received orders of ¥1,476.5 billion, earned ¥1,196.3 billion in revenue, ¥80.8 billion in business profit and ¥72.1 billion in profit before tax. Profit attributable to owners of parent was 52.5 billion. The year's weighted average exchange rate of Japanese yen was about 24 yen lower year over year. The value of U.S. dollar-based transactions was 1.4 billion dollars. Page 4 Consolidated results by segment This page shows orders received, revenue and business profit by segment. As you see in cells marked number 1, profits dramatically improved YLY in aerospace systems due to air passenger demand recovery and accelerated posting of profits in the third quarter. As indicated by No. 2, energy solution and marine engineering increased profit as a result of a reversal of lost provisions for Chinese shipbuilding joint ventures, which had been posted in the third quarter of the last fiscal year. As marked by No. 3, parasports and engine made gains in revenue and profits, driven by robust outdoor demand and weak Japanese yen, while successfully passing the cost inflation to pricing. As a result, the quarter ended with a revenue of 1,196,3 billion yen, up by 157,6 billion YOY. The business profit increased to 80,8 billion yen, up by 52,1 billion. Page 5, Income Statement. Please look at the table for details. As you see in the box 1, raw material cost rose, but the sales cost ratio improved as a result of a price path through in mass production products, growth in sales volume, and a depreciation of the Japanese yen. As you see in Box 2, selling, general, and administrative expenses increased mainly in the headquarters departments, but this is in line with our starting plan, just like the second quarter. As box number 3 shows, a share of investments accounted for using equity method had posted loss provisioning due to bad profitability at ship and offshore structure joint ventures in China in the same period last year under steel price pressure. The situation is improving, and the depreciation of RMB has been helpful, enabling reversal of the provision. As a result, the share in equity method subsidiaries was 3.9 billion yen in profit, improvement of 19.1 billion yen. The business profit was 80.8 billion yen, up by 52.1 billion yen year over year. Page 6. Let's turn to profits under business profit. This quarter saw rapid appreciation of Japanese yen, generating a valuation loss on assets denominated in foreign currencies. The third quarter posted ¥4 billion in foreign exchange loss. Adding other finance costs, profit before tax was smaller than business profit at ¥72.1 billion. The profit attributable to owners of parent was ¥52.5 billion, up by ¥41.2 billion year over year. Page 7. Details of a change in business profit. I will explain the factors contributing to change in profit. The Japanese yen's depreciation improved profit by 42.1 billion yen. Higher raw material prices pushed up our cost, but that was successfully offset by price path through and cost reduction. Furthermore, Parasports and Engin continue to enjoy strong sales, gaining 7.6 billion more in revenue. As I said before, power sports and engine was able to pass cost increase through new pricing, and the product mix effect turned from negative to positive in this quarter. As a result, the business profit reached 80.8 billion yen, up by 52.1 billion YOY. Please refer to page 8 for more details by segment. Page 9, Statement of a Financial Opposition and Total Assets. This slide shows the changes in assets. As marked by number 1, power sports and engine and aerospace systems increased inventories. Box number 2 shows aerospace systems increased advance payments to suppliers from advance money received at the last year end. Air engine increased account receivables. For these reasons, the company carries more current assets. Page 10. This slide shows change in liabilities and net assets. As is indicated by number 3, interest-bearing debt level is higher compared to the level at the year end, but this is the normal business cycle and the debt level is lower than usual years. Please understand that it is in line with the plan. This quarter ended with a net DE ratio of 112.1%. In order to return to the target range of 70 to 80% by the year end, we will continue to accelerate collection of accounts receivable, control inventory assets, and improve asset efficiency. Page 11. Box number 1 shows the cash flow from operating activities. Cash outflow from operating activities was ¥113.1 billion, improvement of ¥22.5 billion YOY, driven by significant profit improvement in spite of increase in advance payments to suppliers from the money received at the year-end. The cash outflow from investing activities increased by ¥6.8 billion. This was mainly due to capital increase to our equity method affiliate, Medicaroid. Other than this, there is no big change YOY. The total free cash flow was negative ¥166.3 billion, improvement of ¥15.7 billion YOY. Page 12 shows historical cash flows over the past 10 years. Page 13, earnings forecast for FY 2022. Turning to earnings forecast for FY 2022. Changing the FX assumption from 140 yen a dollar to 130 yen has a negative influence on profits, but the strong power sports and engine is leading the revenue up to 1 trillion 750 billion yen, 30 billion yen more than the November forecast. Likewise, business profit is projected to reach 86 billion yen, up by 10 billion. Profit before tax will be 78 billion yen, up by 10 billion, and the profit attributable to owners of a parent will be 54 billion yen, up by 9 billion. All financials were revised up. The fourth quarter will continue to grow in revenue. However, we will see a drop in profit temporarily, because the company is planning to pay more to employees under inflationary pressure. We also plan to put provision for performance-based bonuses and other expenses, such as digital transformation. But please understand that a temporary drop is not due to deterioration of operation environments. Next, I will explain forecast by segment. Page 14 Forecast by segment is shown in the table. I will go into more details on segment-specific slides. Page 15 Aerospace Systems financial results are shown on the slide. Orders received increased with Ministry of Defense and for commercial aircraft jet engines. Both revenue and business profit grew YOY, driven by big growth in commercial aircraft jet engine after sales revenue growth during this quarter. The full year forecast of orders received and revenue remained the same as in November. The business profit was revised up by $2 billion thanks to better margin on some models as a result of longer flight hours of commercial aircraft engines. This is positive enough to cover the adverse impact of FX rate change on profit. Page 16. This slide shows orders received in the revenue of aerospace and air engines as well as aircraft components sold to Boeing and jet engine components sold. Business profit of the fourth quarter is projected to turn negative with a loss of 1.2 billion yen from the positive earnings of the third quarter. As I mentioned earlier, this is because the high margin after sales revenue concentrated in the third quarter, which boosted profitability. It is also because the scheduled payments to original equipment manufacturers are settled mainly in the fourth quarter. In addition, the fourth quarter will post a charge-off related to discontinuation of some engine development. All considered, the profitability of this segment is improving in line with the market recovery. Page 17. Aerospace Systems. This page shows the quarterly revenue and business profit. Page 18. This page describes our view of a business environment and order trend as well as specific efforts and initiatives to achieve the earnings targets. Page 19. Rolling Stock. The orders received increased by 252.1 billion yen YOY due to major orders for new subway cars for New York City Transit. The revenue grew due to increase in Asia, but business profit shrank by 2.1 billion due to loss provisioning for delayed Long Island Rail project in US at the end of the last quarter. The full year forecast for FY 2022 hasn't changed as we don't anticipate big changes to orders received revenue or business profit. Page 20. This page shows orders received and revenue in domestic in Asia and in North America. For your information, the appendix shows sales from high margin after sales service and progress of M9 project for Long Island Railroad in the United States. Page 21. This page shows the quarterly trend of revenue and business profit for your information. Page 22. The market overview of the rolling stock segment has not really changed since last time. Regarding major project milestone, the R211 Prado trains for New York City transit delivery schedule was moved down from the third quarter to the fourth quarter. There has been delay because the COVID pandemic created disruption to engineer dispatch plans from a European supplier to the United States. As a result, software modification to the purchased equipment took longer than scheduled. But please be assured that there is no other major disruption to affect the overall schedule. Page 23 Energy Solution and Marine Engineering This slide shows the results of the third quarter FY 2022. Orders received made a big jump YY, propelled by orders for power generation facilities and domestic municipal waste incineration plants. The revenue is up thanks to increase in energy business and construction work for submarines, despite a decrease in construction work for domestic municipal waste incineration plants. The business profit improved dramatically as a result of a profit improvement at Chinese shipbuilding joint ventures. The full-year order forecast was revised upward for the third consecutive quarters thanks to increase in LPG ammonia carriers. Revenue and business profit remain the same. Page 24. This page shows orders received and revenue of energy plant and marine machinery, ship and offshore structure, as well as share of profit or loss of investments accounted for using equity method. Page 25. This page shows quarterly trend of revenue and business profit. Page 26. This page shows the market overview and order trend in this segment. The top priority is to provide products and services to achieve a low-carbon and decarbonized society. This slide highlights Kawasaki projects with waste incineration plans. We are developing products for a transition to decarbonized energy. Kawasaki received order to modify gas turbines for a petrochemical company in Belgium so that they can mix 30% hydrogen in co-firing. Another topic is that Kawasaki was awarded the world's first AIP by Class NK for dual fuel generator engine, which uses hydrogen as a fuel. We are leading this area with even more achievements. Page 27. Precision Machinery and Robot. The slide shows the results of the third quarter FY 2022. The orders received and the revenue stayed at the same level last year due to increase in robots in spite of a decrease in hydraulic components for Chinese construction machinery market. On the other hand, business profit declined considerably by ¥4.3 billion due to rising costs of electrical components and raw materials, Chinese lockdown and decrease in hydraulic components for China. The forecast of orders received and revenue were revised down by 10 billion yen respectively, due to probable decrease in hydraulic components and seam conductor robots for China, given the trade restriction against China. The business profit was revised down by 6 billion yen, considering decreased revenue, rising raw material prices, and reduced operation. Page 28. This page shows orders received and the revenue of precision machinery and robot, as well as a share of profit of investments accounted for using equity method. Appendix shows revenue from hydraulic components to China and the revenue of robots by segment. Page 29. This page shows the quarterly trend of revenue and business profit. Page 30. This page shows market overview and specific efforts in this segment. Demand was repressed for hydraulics in China's construction machinery, mainly due to lockdown. As to business environment around robots for semiconductors, we are paying close attention to subdued demand for some products such as semiconductors for smartphones and the impact of US-China economic friction. Page 31. This slide shows the results of the third quarter FY 2022. Revenue grew strongly YOY due to an increase in motorcycles for North America and Southeast Asia, four-wheelers for North America, and general-purpose gasoline engines, in addition to a depreciation of Japanese yen and a price path through. Business profit improved due to increase in revenue and price path through in spite of higher raw material prices, logistics, and fixed costs. We revised upper business profit to 68 billion yen, up by 12 billion from the November forecast, another record number in a row after the previous year, supported by revenue growth from motorcycle sold in developed countries and reduced supply chain risk, although the exchange rate assumption of Japanese yen was revised upward. Page 32. This page shows revenue by subsegment. namely motorcycles for developed countries, motorcycles for emerging markets, utility vehicles, ATVs and PWCs, and general-purpose gasoline engines. In addition to wholesales of motorcycles by country, we included a wholesale plan for FY 2022 in terms of unit number of motorcycles in developed and emerging countries and the number of units of four-wheelers and PWCs. Page 33. This page shows quarterly trend of revenue and business profit. Page 34. Here is market overview of power sports and engine. U.S. and Europe are slightly slowing down in retail, but the market in general remains strong. In case the economic recession becomes real, the motorcycle market in North America will be affected, but we believe that a four-wheeler market will continue to grow and Kawasaki continues to launch attractive models going forward. Also, demand in emerging Asian countries is recovering. We will continue to work hard to keep this segment as a revenue driver by adapting to changes in business environment. There is no big change other than this. Page 35 Shareholder Return As I explained earlier, the projected profit attributable to owners was revised up to ¥54 billion, up by ¥9 billion from the previous forecast. In the meantime, we would like to keep the dividend forecast unchanged at this moment, considering that a company is planning wage raises to respond to inflation and external risks such as sharp appreciation of the Japanese yen. Please understand that a company would like to determine and announce the dividend later based on full-year earnings results. Page 36. I would like to report four project topics today. The first topic is Hinoteri, surgical robot system which is drawing huge expectation from the society. In October last year, Hinoteri was approved by National Health Insurance for gastroenterology and gynecology. Insurance coverage will qualify Hinatori to perform 90% of robotic-assisted surgeries in Japan. The cumulative number of facilities introduced in Hinatori was 31 as of December as you see in the slide, but the number has reached 33 as of January end. More than 1,000 surgeries have been performed with Hinatori as of January end. A single-year market share in Japan is already above 20%. Last month, Hinotori won a Prime Minister's Award in the 9th Monozukuri Nippon Grand Competition. Hinotori is highly recognized by medical doctors at home and abroad. We plan to launch Hinotori in Asia next fiscal year, starting in Singapore first. Page 37 The next project is placed directly under the President's command, with market launch in sight. It is a delivery service robot. Kawasaki and Fujita Health University conducted joint demonstration with Kawasaki's service robot 4ROW to reduce workload of healthcare workers and streamline in-hospital operation. During the demo, the service robot 4Row delivered specimens and medication instead of healthcare workers. The demo identified issues related to around-the-clock operation of robots, such as connectivity with infrastructure like elevators and security doors. We are planning to build a system to enable non-stop operation of robots for full-scale launch of the service in FY2023. This slide introduces our carbon neutrality conscious motorcycles. Kawasaki motorcycles are very popular and boast a top market share in Japan's 401cc plus market for five consecutive years. We will launch Japan's first motorcycle-style battery, EV, this year, and will launch the industry's first strong hybrid motorcycle, HEV, in 2024. In early 2030s, we will develop motorcycles powered by hydrogen-fueled engines. Kawasaki will provide a wide range of choices to all needs of people who want to enjoy their leisure in the carbon-neutral society. Page 39. The last project topic I want to share today is hydrogen, which is a promising project as a core of our business portfolio. Since last year's formulation of a re-power EU in Europe, there is a renewed momentum of a transition from fossil fuels. Renewable energy is expected to become the main power source in Europe, but the challenge is its susceptibility to weather conditions. Stable supply requires good and highly adjustable backup power sources. We are confident that Kawasaki's proud technology of small and medium-sized hydrogen gas turbines will deliver a solution to this problem. Kawasaki has a proven track record of 100% hydrogen power generation, which has been in operation in urban areas, and small to medium-sized gas turbines in Europe as well. We are receiving a flood of inquiries from all over the world, including RWE of Germany. Our technology is recognized as the world's front runner, both in name and in reality. We are ready to accelerate our growth on a global scale as a significant hardware supplier in hydrogen power generation. Page 40. From this slide onward, contain information regarding a capital expenditure, depreciation, R&D expenses, the head account, at the year end, and so forth. Thank you.