Mitsubishi Heavy Industries, Ltd.

Good afternoon, everyone. Allow me to summarize the first half financial results using the first half FI 2023 financial result presentation materials. The materials are organized according to the table of contents. First, I will provide an overview of our financial results. Please see slide four. This page shows the key financial indicators. Slide five summarizes the highlight. Order intake, revenue, and profits. were all higher year-on-year. The increase in order intake was particularly large, and the rate of progress against the initial annual forecast of $4.6 trillion was about 68%, an unusually high level. We have raised the annual forecast by 1 trillion yen to 5.6 trillion yen, partly because of the progress in GTCC and defense. Both of them have exceeded the plan. Both business profit and income increased significantly year over year. As shown later on slide 9, Although a one-time loss was put in error engines related to an international joint development project, the effects of price optimization, which began to be seen last year, increases in revenue, and the impact of the depreciation of the yen contributed similarly to the first quarter. Moreover, free cash flow decreased by approximately 80 billion yen year-on-year, but remained at roughly the same level as forecast in the first half of our full-year plan, indicating progress as planned. We will pay an interim dividend of 80 yen per share as announced at the beginning of the fiscal year. The interim dividend is in record high, exceeding the 75 yen paid in 2019. Slide 6 and a few pages beyond provide a little more detail about our financial results. Slide 7 includes information already provided, so let me skip one explanation. Slide 8 shows balance sheet and cash flows. Total assets increased by 286.3 billion yen from the end of FY2022 to 5 trillion yen, 761.1 billion yen. The majority of this increase is attributable to the impact of currency translation effects related to foreign currency denominated assets due to the depreciation of the yen. This amounted to approximately 180 billion yen. Although inventories have increased slightly, we believe this is a normal trend for MHI within the range of normal fluctuations. As for cash flow, operating cash flow decreased significantly year-on-year. While revenues are expanding, we are in a phase of working through advances received due to changes in our product mix. However, we will continue to carefully manage trade receivables and inventories. Investing cash flow increases slightly year-on-year due to the sale of securities.

What financial factors would contribute to year-over-year changes in business profit? Next slide. shows first-half fiscal year 2022 business profit, which was 54.8 billion yen. To the right, the variance in one-time expenses for thermal power and other businesses, which is the difference in losses incurred during the first-half fiscal year 2022, which are organization optimization expenses for European operations and the one-time loss related to an zero-endage program, which is booked in the current fiscal year. Providing price optimization. while cost increases in forklift and HVAC and other businesses went down year over year, benefits of price optimization or price increases exceeded this, resulting in an increase of 24 billion yen. Here are the factors shown here. Business profit in first half of 2023 was 101.9 billion yen. Size 10 shows a summary of order intake, revenue, and business profit by segment. Over the next few pages, I will explain the situation in each segment. Select 11 shows the status of energy system segment. Order intake, revenue, and profit all increased year over year. Particularly, based on GTC's continued good performance and favorable overall progress, we have revised our full year order intake forecast by 200 billion yen. In terms of profit, although progress has been slow compared to the full-year forecast due to the booking of one-time losses and other factors, we have maintained the current forecast as positive impact when the depreciation of the yen is expected. Slide 12 shows the situation in the planned infrastructure system segment. In this segment, revenue and profit increased year-over-year despite the decrease in order intake. As shown in the table, the main cause of the decrease in Order 8 intake was results machinery. We read the level of order intake in the first half at 226.9 billion yen was high, and the market continues to be strong. Slide 13 shows the situation in the logistics, thermal, and drive system segment. Order intake revenue and profit increased year over year. Order intake and revenue are showing steady progress at around 50% of the full-year forecast. We have raised profit forecast by 10 billion yen based on the progress made in the first half and the impact of the currency exchange rate assumptions. 514 shows the situation in aircraft defense and space. Order intake revenue and profit increased year over year. Specifically, order intake booked in the segment totaled 999.4 billion yen, which was roughly equal on the same level as the initial full-year forecast. This was due to continuous growth in defense in the first quarter. Based on the progress made thus far, as well as the future plans, we have substantially increased the full-year order intake forecast from 1 trillion yen to 1.8 trillion yen. Revenue and profit increased year-over-year due to an increase in the number of 787 aircraft shipped to Boeing in the commercial aviation aerial structures businesses and the benefits of the depreciation of the yen. With this, we have increased the full year forecast by 10 billion yen. On slide 15 through 18 shows the FY2023 earnings forecast. A summary of the revisions made is shown on page 16. I will forego an explanation as this page outlines the information I have already shared. This concludes my explanation. Thank you very much.

Now, please allow me to start my presentation. As been discussed by our CFO, the second quarter of FY2023 have suppressed the previous year's level in terms of order intake revenue and business profit. This is the result of the various initiatives that we've been promoting as a part of 2021 MTBT. In terms of the operating environment, it remains still uncertain with the weaker yen and unstable energy supply due to the geopolitical risk as well as the confusion of the value chain. However, we believe that 2021 MTBP is progressing as per plan and it is still possible to achieve the target. Please let me recap 2021 MTBP. We have seen a rapid change in the market condition due to COVID-19 pandemic in 2021 NTBT. So we decided to strengthen profitability rather than pursuing the expansion of top line. And we have implemented various initiatives. One of the challenges that we have faced with was the development of space jet. We looked at the changes in the market environment and we have decided to suspend the development. And also, we have worked on the restructuring of boiler base for thermal power business and consolidated and profitable businesses in metals machinery. We have also adapted the digital technology to expand the area of service to stabilize the profit. In terms of the business portfolio, we have incorporated Mitsubishi Power, Mitsubishi Heavy Industry Engineering into MHI. We have made the acquisition of the electrification business as well as the naval and governmental ships, and we have sold the machine tool business. Another important initiative of 2021 MTBP was to grow the new growth segment of businesses, and we are now seeing some tangible effect. As for the energy transition, we have promoted renewable energy initiative, and on top of that, we have gained a further understanding of the more realistic energy transition based on the customer needs which is compatible with S plus 3D concept. In terms of the social... We are now pursuing the sustainability of the society as well as securing the business profit. From that perspective, we have implemented various initiatives in a wide range of business domain. More specifically speaking, we have promoted, if you will, conversion of existing facilities. We have responded to the future hydrogen needs. And based on USIRA, we've been working on the Clean Hydrogen Hub projects. In the area of the CO2 capture, we are collaborating with ExxonMobil. And on top of that, we've been working on the demonstration project in Takasago Hydrogen Park to achieve the demonstration of hydrogen and ammonia. In terms of the smart infrastructure, We are seeing a rapid growth of data center market driven by the higher needs of the high communication for 5G and generative AI. We have a business base of high-efficiency cooling equipment as well as carbon-free electricity for this industry, and we have made the acquisition of U.S. company ConsentRink. With this as a foundation, we are aiming to achieve one-stop solution in the most cutting-edge total energy solution. And we are seeing a heightened interest in security area due to the heightened attention of geopolitical risks and also seeing a higher interest in energy security as well. That is leading to the new business opportunity in nuclear power as well as defense industry.

This ends my previous update on 2021 MTBP initiatives. To conclude, I believe that it is possible to achieve our targets under the plan. Next, I will explain the overall direction of our next medium-term business plan, the 2024 MTBP, which we are currently formulating. First off, MHI's mission is to integrate cutting-edge technology into expertise built up over many years to provide solutions to some of the world's most pressing issues and provide better lives to the people. With this mission in mind, in order to realize our medium- to long-term goals of Mission Net Zero and a safe, secure, and comfortable society during the 2024 MTBP period, we will provide realistic solutions tailored to each region and customer, while aiming to become a hub for transitional ecosystems founded in craftsmanship connecting upstream and downstream. We will work on three key priorities to this end, decarbonization, energy saving, automation, and contributing to national security. Furthermore, during the 2021 MTBP, the focus has been on strengthening profitability, but during the 2024 MTBP, the focus will be on achieving both profitability and growth, aiming sustainable growth as a company. We aim to achieve business growth in line with our competitors while improving profitability and capital efficiency. To this end, we are considering expanding business areas upstream and downstream and taking on project origination, enhancing competitiveness through mergers and acquisitions, and shifting resources to growth areas by further optimizing our business portfolio. To realize this, we will invest more than 300 billion yen and grow our businesses as such. I will explain the specific initiatives when the next MTPP is announced in May of next year. Thank you very much.