Mitsubishi Heavy Industries, Ltd.

The time has come for us to begin the Mitsubishi Heavy Industries Limited fiscal year 2024 financial results briefing. My name is Tadashi Arakawa, Senior General Manager of the Investor Relations and Shareholder Relations Department. I will be your moderator today. Thank you for joining. I'd like to introduce today's speakers, Eisaku Ito, President and CEO, and Kisato Kozawa, Member of the Board, Executive Vice President and CFO. We will begin with a presentation on our fiscal year 2024 financial results from our CFO, Kozawa. After that, President Ito will provide comments on his assessment of the fiscal year 2024 financial results, as well as regarding our corporate strategy for fiscal year 2025. Finally, we will have time for Q&A. Today's briefing is scheduled to end at 4.30 p.m. Japan Standard Time. We appreciate your cooperation during today's event. Our presenters will use the fiscal year 2024 financial results slide deck, which is available for download at the investor section of our website. Without further ado, allow me to move on to CFO Kozawa's financial results presentation. Hello, everyone. I am Kozawa. I will now go through our slides. financial year 2020 financial results, and our FY2025 earnings forecast. So it's as usual. You can see the table of contents on slide two. First, I would like to provide an overview of our financial results in fiscal year 2024. Please refer to slide four. This slide shows results and several key financial indicators, and highlights of the results are shown on slide five. order intake, revenue, business profit, and net income all exceeded the results of the previous fiscal year and reached record highs. Free cash flow also reached a record high of 342.7 billion yen. We also achieved all of the targets within our most recently announced forecast. And based on the increase in equity resulting from the booking of net income for fiscal year 2024, We'll increase our year-end dividend by 1 yen over the previously known forecast of 12 yen per share, which makes the full-year dividend 23 yen per share. Additionally, in the previous fiscal year, the full-year dividend was 20 yen when adjusted for the stock split, which makes this dividend a 3 yen or 15% increase compared to previous year. This dividend per share figure is a record high when adjusting for last year's stock split. Slides six through eight show some highlights from our financial results. Slide six is about GTCC gas turbine combined cycle. The bar graph in the lower left-hand corner shows gas turbine market demand data on a calendar year basis. Demand increased significantly in 2024 to 55 kilowatts. During fiscal year 2024, MHI booked orders for 25 large frame gas turbine units and the amount of order intake also reached a record high. Although not mentioned on this slide, we believe that our company is second only to GE and Nova in terms of market share on an OEM basis. As shown in the graph to the right, revenue, both new installations and services revenue, has continued to increase, partly due to growth in orders over the past few years, and we expect revenue to increase in fiscal year 2025 as well. Slide seven is about nuclear power. As can be seen from the color coding in the bar graph on this slide, While the composition of revenue has gradually changed, total revenue has been stable around 300 billion yen per year since fiscal year 2020. Going forward, we expect to maintain revenue around 300 billion yen or a little higher for the time being as we make progress in the design of advanced reactors and BWR restart work. Slide 8 shows order intake and revenue in defense and space. Order intake in fiscal year 2024 was almost as in fiscal year 2023, which was the highest ever achieved in this business. This was due to the fact that under the Japanese government policy of strengthening the country's defense capabilities, I mentioned I booked orders for several large projects, including missile systems and naval ships, which are some of our specialties in the sector. Revenue has also increased significantly due to an increase in order intake since fiscal year 2023, reaching record highs for two consecutive years. So we believe it's going to grow a little bit more further. And slides 9 and beyond provide a little bit more detail about the financial results. Slide 10 includes information already provided, so I will forego an explanation. Slides 11 and 12 show the balance sheet of the around 400 billion yen increase in total assets. More than 200 billion yen is from an increase in cash and cash equivalents. Although this was due to a temporary increase in cash at the end of the fiscal year, due to receipt of advances received, cash and cash equivalents were 657.8 billion yen at the end of the fiscal year, which slightly exceeded interest-bearing debt, which was 651.8 billion yen. So this was the first time that net interest-bearing debt became negative. The equity ratio has been stable at around 35%, and the debt-to-equity ratio has reached a record low level. We believe that our financial stability and capacity to raise funds have increased. Slide 13 shows trends in several financial indicators. You can see that each indicator is improving steadily. Slide 14 shows our cash flows. Green cash flow improved by 142.6 billion yen Year-on-year, it is 342.7 billion yen. Both free cash flow and operating cash flow, which was 530.4 billion, reached record highs. Compared with the previously announced free cash flow forecast of break-even, this was an increase of 300 billion yen. The significant improvement was due to an increase in cash inflows from advances received arising from large increase in order intake toward the end of the fiscal year, as well as due to a delay in the timing of outflows from investments.

Summary 15 shows factors that caused changes in business profit from 282.5 billion yen in FY2023 to 383.1 billion yen in FY2024. Although the impact of wage hikes and other factors pushed down profits in a period, the increase in sales and improved profit margin in each segment, as well as the effect of a weaker yen and increased gains on the asset disposal, resulted in a significant increase in profits. If I may add a little more details, the changes in one-time expenses represents the difference between 54 billion yen in FY2023 and the 20 billion yen in FY2024. These expenses were mainly caused from business structure optimization as well as extraordinary losses, including the execution team of power plant products. In FY2023, we booked one-time expenses related to an aero engine program and the claims for overseas projects. In FY2024, we booked expenses from claims and dispute resolution costs for overseas projects. Two bars to the right of that, losses from equity method FPC investments represents our share of one-time expenses recorded by power plant operating companies in the third quarter, as I explained during the Q3 financial results briefing. Slide 16 shows a summary of order intake, revenue, and business profits by segment. Over the next few slides, I will explain the situation in each segment. Slide 11 shows the situation in the energy segment, the energy system segment. As I mentioned earlier, performance in GPCC and nuclear power, which are the main earnings in this segment, have been strong. In aero engines, revenue and profit increased due to increased demand and a rebound from one-time losses incurred during the previous fiscal year. Slide 19 shows the situation in the plants and infrastructure system segment. In metals machinery, which is the main earner in the segment, order intake, revenue, and the profit increased year-on-year. In machinery systems, order intake, revenue, and the profit increased steadily. Slide 19 shows the situation in logistics, thermal, and the driver system segment, or LT&D. FY2024 was a difficult year for this segment. Order intake and revenue were in line with the previous fiscal year, while profit decreased significantly. Although revenue and profit increased due to strong performance in the HVAC business, revenue and profit decreased significantly in the logistics systems business due to a slowdown in the North American market and an engine certification problem. In the turbochargers business, a loss was recorded due to the bankruptcy of a supplier in Europe. Slide 20 shows the situation in the aircraft, defense, and space segment. In the defense and space business, in addition to the increase in revenue I explained earlier, profit margins have been improving. In the commercial aviation business, despite a decrease in the number of Boeing 777 units shipped, we were able to maintain revenue scale due to growth in the North American aftermarket business and the depreciation of the yen. Over the next few slides, I will speak a little about our financial year 2025 earnings forecast. Slides 22 and 23 provides an overview of the earnings forecast. Total order intake is expected to remain at a high level of nearly 6 trillion yen, although this represents a decrease from FY 2024. Revenue and profit are expected to increase. We are planning for a four-year dividend of 24 yen per share, a year-on-year increase of 1 yen per share, As noted at the bottom of slide 23, the impact of American reciprocal tariffs is currently unclear and cannot be evaluated, so we have not included this in our forecast. We are expecting cost increases for components and other items imported to the United States, but we will work to minimize direct impact on our earnings by passing through this cost to our customers. It is hard to predict market trends and economic fluctuations, but we will make every effort to respond quickly two conditions on the ground. After slide 24, there is an explanation about the gaps, ups and downs, but I'd like to not talk about that. For the slide 29 and onwards, we have some supplementary data, so please look at that for your convenience. This concludes my explanation. Thank you very much for your attention.

Thank you so much. We will now move on to President Ito's comments. Please go ahead. This is Ito, President. I would like to speak about my assessment of the fiscal year 2024 financial results and our corporate strategy for fiscal year 2025. In the financial year 2024, order intake, revenue, business profit, and the cash flow all overachieved the plans we established at the beginning of the fiscal year. Particularly when it comes to order intake, we greatly overachieved our initial plans. These results come from our efforts in expanding service businesses and initiatives to improve productivity. Our evaluation is that we have been able to achieve a smooth start in the first year of our 2024 midterm business plan. On the other hand, when we look at the current business environment, reciprocal tariff policies, increasing inflation, are leading to concerns around global economic downturns, exchange rate fluctuations, there is much uncertainty. At the same time, we also see increased understanding towards a more realistic energy transition that does not solely rely on renewable energy. So we see various business environment changes. Our company will flexibly respond to these environmental changes, prepare for uncertainty, and will steadily capture new business opportunities. Under this business environment, we intend to drive various initiatives for business growth and further profitability improvements with even more power. In order to do this, we will introduce a new concept called innovative total optimization. As we strive to expand our business areas and synergies, in the short term, we will aim to achieve our 2024 midterm business plan. And mid to long term, we aim to unleash our growth potential and create new value so we can achieve sustainable and substantial growth.