Mitsubishi Heavy Industries, Ltd.

Hello, everyone. This is Okozawa, CFO. So allow me to give you an overview of the first half of FY2024 financial resources in the presentation materials. has been released in advance. I will make a detailed explanation and focus on the key takeaways while providing supplementary information. So first, I'd like to provide a new review of financial results. Please refer to slide four. The page shows the results in the several key highlight indicators. Highlight of the results are shown on slide five. Similar to the first quarter, overall performance in the first half was in line with our plan. Order intake, revenue, and profit were all higher year-on-year. Order intake increased significantly from FY2022 to FY23, even more so in the current fiscal year. order orders for defense, which led to the increase in orders in FY2023 decreased. Orders for gas turbine combined cycle, aero engines, and metal machinery increased significantly. Our previous four-year order intake forecast was 5.8 trillion yen, but we have now raised our forecast to 6 trillion yen, as year-to-date progress has exceeded our expectations. Both business profit and net income increased year-on-year. Particularly of note, business profit increased 87%, as I will explain in slide 9. Order intake, revenue, and profit items all achieved record highs for the first half. Slide 6 and beyond provide a little more detail on our financial results. Slide 7 includes information already provided, so I will forego an explanation. Slide 8 shows the balance sheet and cash flow rates. Total assets increased by 220.8 billion yen from the end of FY 2023 to 6,477 billion yen. Because the yen appreciated at the end of September, the impact of currency translation effects related to foreign currency denominated assets served to decrease assets by 80 billion yen. Excluding this impact, the foreign currency denominated assets increased by around 300 billion yen. The figures I'm about to explain excluding foreign exchange effects. Cash and cash equivalent increased by a little less than 100 billion yen and inventories increased by around 150 billion yen. This increase in inventories is a typical trend for a company and we assess this to be within the range of normal fluctuations, taking into account that we are in a revenue growth phase. Regarding cash flows, Free cash flow improved by 95.4 billion yen a year, mainly because investing in cash flow increased significantly due to expenses for the acquisition of an office building in Tokyo, while operating cash flow improved significantly due to an increase in profits and a year-on-year smaller increase in working capital. three initial factors which caused year-on-year changes in business profits. The leftmost bar shows first half FY2023 business profit, which was 100.9 billion yen. Although there were negative factors in first half FY2024, such as the impact of wage increases, there were a variety of other positive factors. Business profit in first half FY2024 was 188.4 billion yen, mainly due to revenue growth in main businesses, the effect of improved product mix and profit margins, and the fact that the yen tended to depreciate in terms of the average rate during the period in question. Now, I'd like to add a little color about foreign exchange effect. As you can see on this graph, in terms of business profit, the average exchange rate in first half FY2024 had the yen at a weaker level year on year, which contributed to an increase in profit. That said, gains and losses on exchanges and foreign exchange rates, which are realized within Finance income cost below the business profit line item includes monetary differences between the time of recording and the time of deposit withdrawal, as well as the translation of black differences at the end of the period. These changes in foreign exchange ratio served to increase net income by approximately 20 billion yen in first half FY2023, but decreased net income by more than 30 billion yen in first half FY2024. This is the reason why the financial income and cost figures have significantly changed year-on-year. The slide then shows a summary of order intake, revenue, and the business profit by segment. I will explain a little by segment below. Please note that due to the establishment of GX solutions in April of this year, we have made some adjustments to our reporting segments. The first half of our 2023 figures shown here have been retroactively adjusted to reflect these changes. Slide 11 shows the situation in the energy system segment. Order intake, revenue, and profit all increased year-on-year, marking a good start in terms of progress towards the full-year forecast. Of note, GTCC had continued to show strong order intake performance since the previous fiscal year. In steam power, although revenue decreased in line with expectations due to the cessation of the new installation in coal-fired thermal power, profit increased due to strong service work. In aero engines, order intake and the revenue from parts sales and maintenance increased due to recovery in the market. Based on the steady progress year-to-date, we have increased full-year order intake guidance by 150 billion yen to 2 trillion yen, and the business profit guidance by 10 billion yen to 180 billion yen. Slide 12 shows the situation in the plants and infrastructure system segment. In this segment, order intake revenue and profit increased year on year, making a favorable Large orders in metals machinery, waste energy systems, and mechanical systems contributed to year-over-year growth in order intake. Based on the progress made year-to-date, we have increased our full-year business profit guidance by 10 billion yen to 40 billion yen. Slide 13 shows the situation in the logistics, thermal, and the drive system segment. Order taken revenue for segment as a whole were basically flat year on year, but when accounting for taking the impact of the depreciation of the yen, net revenue actually decreased. Turbocharger revenue decreased due to production disruptions caused by a supplier. Logistics systems revenue decreased merely due to a decrease in international unit deliveries. Based on the progress made year to date, we have revised the four-year business profit guidance by $20.2 billion. shows the situation in aircraft, defense, and space segment. Order intake decreased year-on-year due to the booking of several large defense projects in first half of 2023. However, order intake was still high compared with previous levels, and we're making steady progress towards our full-year forecast. As for revenue, we are steadily working to execute on a large order backlog. In addition to the effect of increased revenue, profit increased significantly due to depreciation of the yen. Slide 15 through 18 shows the SI2024 earnings forecast. This time, we have only revised order intake and business profits. I have already explained the details of this revision, so I will omit an explanation. That concludes my explanation. Thank you very much for your attention. And now, please allow me to move on to President Izumi Sawada's comments.

So this is Izumi Sao speaking. Allow me to speak about our earnings forecast for the current fiscal year and our progress under our 2024 medium-term business plan. First, I will outline the earnings forecast for the current fiscal year. Although our operating environment will remain uncertain during the second half of this year, due to geopolitical risk, commodity price inflation, and foreign exchange fluctuations, as we have booked solid order intake so far, we believe that it is possible to achieve our FY2024 plan through the city execution of a backlog. In terms of order intake, in addition to gas turbines, nuclear power, and defense, which are expected to see solid demand, metals machinery and aero engines are performing well. And while some businesses are facing difficult market conditions, we have decided to increase our full year forecast. Next, I will speak about the operating environment in each segment and the progress of the key 2024 MTBP initiatives. ETCC currently has a global demand of 40 gigawatt per year, which is expected to grow to 50 gigawatt per year by 2026, and the market is expected to remain strong for some time to come. This is due to demand for decarbonized fuel conversions, including the transition from oil-fired systems in the Middle East, and demand for stable power supplies for data centers in North America. As for the MHI group, inquiries for GTC systems are increasing, especially in North America and the Middle East. In order to meet this strong demand, we are working to strengthen our business execution capabilities and secure a competitive advantage. Specifically, we will increase personnel by 10% by FY2026, expand our blade production line capacity, and develop decarbonized gas turbines, including those using hydrogen and ammonia, to maintain our top market share. Regarding nuclear power, in addition to supporting the stable operation of restarted PWRs, we will also support the restart of BWR plants, plant replacements, and the development of advanced reactors in response to the Japanese government's policy to promote the use of nuclear energy. In order to achieve this, we are working to strengthen our business execution capabilities by increasing personnel by 10% by FY2026 and increasing our investment in production facilities and R&D by 30%. In aero engines, we are responding to increased demand for MRO around the world by taking advantage of enhanced in-house production and maintenance capabilities that we started during the 2021 MTBP. In plant infrastructure and systems, in metals machinery, investment in green steel is accelerating to realize carbon neutrality. For the time being, there are constraints and challenges in the supply of green energy, so we will respond to the growing market with electric arc furnaces and shaft furnace direct production systems that utilize reformed gas. We are also working to provide new services utilizing AI and digital technologies. Specifically, we are developing remote services and part sales using digital transformation techniques in a paper converting machinery business, which has an extensive large track record of deliveries in North America. In engineering, we will provide new services to meet customer needs, such as remote vehicle monitoring enabled by Sigma Sync supervision and the integrated management of maintenance data. So the logistics and thermal and drive systems, Engines is working to meet robust demand for data centers, mainly in Southeast Asia and China, two areas of strength for the MSHI group. The full-year forecast for the LT&D segment as a whole is looking tougher than originally anticipated due to the uncertainty in the North American market and logistics systems. That said, Logistics Systems sees a strong need for labor saving and automation systems due to labor shortages and rising wages. We are developing and implementing an integrated control system that supports operator-machine coordination. We are also working with various partners to develop automation products. Demand in HVAC is strong due to continuing urbanization of rural areas, efforts to slow global warming, and stricter environmental regulations. We are working to enhance our lineup of products using natural refrigerants and our environmentally conscious products, expand products' capacity in international plants, and extend our sales networks. The defense business is rapidly expanding in response to Japan's national security initiatives and is expected to increase revenue to 1 trillion yen during the 2024 MTBP. For this reason, we are greatly expanding personnel and will increase the number of employees by 40% by FY2026. In addition, we are increasing investment in products and facilities by 30% to strengthen our business execution capabilities in space. The launch of Unit 4 of the H-3 launch vehicle on November 4th was a success, thanks to the support of all of our stakeholders. Going forward, we will continue to build on these successes with the H-3 launch vehicle and expand our launch services business. We will also participate in future projects and contribute to the development of Japan's space industry. In commercial aviation, performance in the first half of FY20-2024 exceeded the initial plan due to the impact of foreign exchange rates and cost reductions. However, we will need to continue monitoring the impact of the Boeing strike. Finally, allow me to speak about our future growth areas. As for hydrogen, ammonia, and CCUS, the realization of projects has been slower than expected due to uncertainty regarding return on the investment needed to attain widespread implementation. However, efforts towards decarbonization in the midterm are essential. With an eye toward the establishment of new markets, we are proceeding with R&D and a demonstration of new systems, as well as participating in demonstration projects in various regions and working to build value chains such as we are doing under our alliance with ExxonMobil. The data center market is rapidly growing and we are already meeting strong demand mainly for turbo chillers and standby generators. As I mentioned earlier, the number of inquiries for DTCC is increasing due to growing power demand. Going forward, in order to meet customers' expectations for one-stop services, we will build an integrated project execution organization which will encompass all necessary staff functions, including project managers and service personnel. In terms of products, we are seeing increasing opportunities to provide high-efficiency cooling systems and decarbonized power sources, which are currently under development. We are proceeding with demonstrations and working to bring these new products to market as soon as possible. We are also making steady progress in strengthening and enhancing our human capital and technologies to support these efforts with an eye towards the future beyond the current MTBP period. That's all from me. Thank you very much for your attention.