Mitsubishi Heavy Industries, Ltd.

Good afternoon, everybody. Allow me to summarize fiscal year 2023 fiscal results and FY2024 earnings forecast using these presentation materials. Then, according to the materials, I will go through your presentations. The materials are organized according to the table of contents shown on slide two. First, I will provide an overview of our financial results. please refer to page four. This slide shows the results for several key financial indicators. In terms of the, slide five summarizes the highlights. Order intake, revenue, and net income all exceeded FY2022's results and reached record highs. Compared to our latest forecast, business profit falls short of our 300 billion target, but we exceeded the guidance for other indices, including order intake, revenue, net income, and fresh free cash flow. Notably, enabled by an increase in net income, we will increase our year-end dividend by 40 yen above the previous forecast to 120 yen per share, putting the full year dividend at 200 yen per share. This would be our highest dividend ever. Slides 6 through 8 show some highlights from our FY2023 financial results. Slide 6 is about our DTCC business. So, Mitsubishi Grand Gas Turbines ranked first in the world in terms of order volume on a capacity basis for two years running in calendar years 2022 and 2023. Large-frame gas provides a particular strength of hours, and the popularity of the latest JAC series has contributed greatly to our market share. So, in terms of the revenue, it has been rising due to the strong order intake in recent years, expected to increase in fiscal 2024 and beyond. Slide 7 is about the nuclear power business. More than 90% of revenue in this business is within Japan, but in the past, most of our revenue was from the after-sales service and the resource support of PWR reactors. In the past few years, we saw support for BWR reactors and construction work on nuclear fuel cycle facilities has been increasing. Going forward, the development and design of advanced reactors are expected to ramp up, so we believe that we can maintain stable revenue levels for the time being. To this end, we believe that it is essential to ensure the safe and steady execution of our various ongoing projects. Slide 8 shows orders and revenue in the defense and space business. Order intake in FY2023 was the highest ever for this business. In response to the Japanese government's policy to strengthen diverse capabilities, we were able to win orders for a number of large projects, including for aircraft and missile systems and speciality for ours. Because most of these contracts are for multiple fiscal years, the impact of revenue in FY2023 was limited. However, there was a certain amount of contribution, and revenue also reached a record high. Slide 10 and few slides beyond provide a little more detail on our financial results. Slide 11 includes information already provided, so I will go on our explanation. Slides 12 and 13 show the balance sheet. Total assets increased significantly, and approximately 240 billion yen of this was due to the currency translation effects related to foreign currency-denominated assets arising from the recurring yen. Interest-bearing debt remained around the same level at the end of FY2022. However, considering the net interest-bearing debt, which is interest-bearing debt minus cash and cash equivalent, decreased by approximately 100 billion yen from the end of FY2022 to 297.6 billion yen. This, combined with an improvement of equity ratio, has served to significantly improve our financial stability. That said, as a large part of the increase in capital gained from rising market valuation due to foreign exchange effects and other factors, we will not allow ourselves to be content with the current situation and will continue to make improvements. Slide 14 shows our cash flows. Free cash flow improved by 164.8 billion yen year-over-year to 200.1 billion yen. Moreover, this result was an increase of approximately 200 billion yen over our forecast, which has targeted negative 100 billion yen. This significant improvement was due to an increase in inflows from advances received toward the end of the fiscal year, as well as delayed outflows from investments.

Slide 15 shows factors which cause the year-over-year changes in business profit. The last month's bar shows business profit in FY2022, which was 193.3 billion yen. To the right of this is changes in one-time expenses, which is the difference between one-time gains and losses built in each fiscal year. In fiscal 2022, we recognized one-time expenses associated with the remediation of issues at our IGCC project, Organizational Transformation Project. expenses related to our European thermal power operations, as well as one-time losses from several international projects. In FY2023, in addition to the one-time loss related to an aero engine program, which was incurred in the second quarter, we also booked expenses related to claims on some international projects and an impairment loss on international investments. Regarding the price optimization, while cost increases in forklift and HVAC contracted year over year, price optimization, that is the transfer of the past cost increases to sales prices contributed to an increase of 35 billion yen. Due to the factors shown here, business profit in FY2023 was 282.5 billion yen. Slide 16 shows a summary of order intake, revenue, and business profit by segment. Over the next few slides, I will explain the situation in each segment. Slide 17 shows the energy system segment. As I mentioned earlier, GTCC and nuclear power which were the core businesses in this segment, performed strongly. Steam power continued to contract due to headwinds in coal-fired thermal power, but this business is finding opportunities in performance improvements and fuel conversions in the service business. Slide 18 shows the plants and infrastructure system segment. Revenue in metals machinery, which is a core business in this segment, grew beyond $350 billion due to strong order intake in recent fiscal years, as well as the weak yen. Slide 19 shows the logistics, thermal, and drag system segment. In this segment, order intake, revenue, and the business profit all increased year over year. The ratio of revenue recognized outside of Japan is high, so the impact of foreign exchange rates or the weekend is significant. However, even excluding foreign exchange effects, revenue and business profit increased. Slide 20 shows the aircraft, defense, and space segments. I explained the defense and the space business earlier. In the commercial aviation business, an increase in aerostructures unit deliveries, combined with significant impact from the weak LAN, served to increase business profit in the segment overall. In the slides, I'll briefly explain an earnings forecast for FY2024. Slides 22 and 23 provide an overview of an earnings forecast. We expect order intake overall to be as high as nearly 6 trillion yen, although it will decrease versus FY2023 levels. Revenue and profit are expected to increase year over year. We plan to pay a dividend of 22 per share, a year-over-year increase of 10%. Slider 24 and beyond explain the year-over-year changes in our earnings forecast, so please allow me to provide one point of supplemental information. Please refer to the slide 34, which is the last page of the appendix. On April 1st, we established GX Solutions as an organization responsible for new businesses related to the green transformation. Since this organization is primarily based on the former engineering business, it is included in the plants and infrastructure systems segment. This reorganization involves the transfer of some of the businesses and development activities previously included in the energy system segment as well as corporate and eliminations. This slide shows which actively adjusted the financial results for FY2023. Please note that the fiscal 2024 earnings forecast shown on the slide 23 and beyond reflects these adjustments. This concludes my presentation on the financial results and the earnings forecast.

This is Ms. Ella speaking. Please allow me to provide an overview of our 2021 BQM Term Business Plan through FY2023. Looking back on our 2021 MTBP, and the time during which it was originally formulated, our operating environment has become increasingly uncertain due to the emergence of tensions between the United States and China, as well as the COVID-19 pandemic. The plan, therefore, aimed to strengthen profitability and develop growth areas, rebuilding our business fundamentals while not pursuing top-line growth. Even after the launch of the 2021 MTBP, we faced changes that we had not originally anticipated, such as rising geopolitical risks, including Russia's invasion of Ukraine, and rising energy and raw material costs caused by these risks. Even so, my assessment is that the various initiatives that we pursued during the 2021 MTBP have achieved results. Moreover, order intake has significantly surpassed our initial plan due to rising demand for gas turbines associated with the global move toward energy transition tailored to local conditions in each region, the growth of our nuclear power business, and the expansion of our defense business due to the growing move towards strengthening Japan's national security. Going forward, we will work to reliably grow these businesses. Allow me to summarize the 2021 MTBP. I believe that our initiatives to strengthen profitability have produced results. Measures to address problem businesses, including the reorganization of boiler plants in the steam power business and the consolidation of unprofitable basis of operations in the metals machinery business. Moreover, we have reassigned personnel to our growth areas, mainly from the coal, fire, thermal power to other areas. In our existing business, in terms of the service business, we are able to expand services in our existing business through the sharing of practices among businesses and the application of AI technologies. We worked to optimize the portfolio of businesses through the acquisition of Mitsubishi NS, Enable, and Governmental Ships business, as well as the North American company active in the electrification area. We also sold the machine tools business. We integrated Mitsubishi Power and Mitsubishi Heavy Industries Engineering into MHI in order to prepare for future business development. Furthermore, we formed the Power Generators, a system joint venture with Mitsubishi Electric in order to strengthen this business. In our growth areas, we work to realize a sustainable, safe, secure, and comfortable society with efforts in both the energy supply and demand areas. On the energy supply side, we work on hydrogen and ammonia fuel conversions, CO2 capture, and nuclear power utilization as countries around the world make progress in the energy transition according to their local conditions.

In order to build ecosystems to support decarbonization through fuel conversions, we developed and validated technologies at Takasago Hydrogen Park and Nagasaki Carbon Neutral Park and participated in the first large-scale hydrogen production, storage, and power generation project in the United States. In light of the situation in hard-to-abate industries, we worked with ExxonMobil and other companies to establish a CO2 solutions ecosystem and participated in CCS projects including the transportation and storage of CO2 in cooperation with companies in Japan and around the world. In the field of nuclear power, we work to research nuclear power plants to establish the nuclear fuel cycle and to develop advanced light water reactors. On the energy demand side, efforts have been focused on automation and energy conservation in systems essential for society. We have made progress in automation of logistics as well as initiatives for data centers. In order to realize the automation of warehouses, we proposed coordination among various autonomous equipment and the optimization of picking tasks with an integrated system to stimulate future demand and expand our business. We developed next-generation technologies for data centers, which are rapidly expanding with the spread of generative AI. In addition, in order to realize a one-stop solution combining power supply and cooling systems, which are some of MHI's core strengths, we acquired Concentric LLC in North America, thereby obtaining a strong base of operations, including existing customer relationships. accelerated efforts to launch these businesses during the 2024 MTBP. I believe that during the 2021 MTBP, we successfully built a foundation for MHI Group's sustainable future growth. Using this achievement as a jumping-off point, the 2024 MTBP will take on the challenges of transforming MHI in order to balance further profitability improvement with business growth. The 2024 MTBP will inter-provide realistic solutions rooted in fine craftsmanship for each region and customer to expand business areas both up and down and to become a hub for ecosystem to realize social changes and provide a detailed explanation during our Mutant Businessman Briefing 2024 schedule for May 28.