JGC Holdings Corporation

My name is Taguchi, General Manager of the Group Finance and Accounting Department. I will be giving you an outline of financial results for the period of six months ended in September 2020, second quarter of fiscal year 2020, which ends in March 2021. I'll begin with a review of the highlights of the second quarter. The second quarter results shows a good progress in accordance with the forecast, and we have maintained our earnings forecast for the full year. The second quarter growth margin ratio was higher than anticipated, reflecting improvement in the profitability of both domestic and overseas projects. There has been no additional impact of COVID-19 on profitability, as construction works in the ongoing project have been progressing with measures put in place to prevent infection. In terms of financial stability, we have maintained a robust financial base to be able to respond to possible deterioration in the business environment amid growing uncertainties in the economic situation. We booked significant amount of inbound order for the refinery project in Iraq. We now move to a statement of income and comprehensive income. Overall, our performance is in line with initial forecast. Net sales were 199.4 billion yen, which was 18.9 billion yen less than in the same quarter in the previous fiscal year. Gross profit rose 3.5 billion yen to 21.5 billion yen. Gross profit ratio improved by 2.5 points to 10.8%. profitability in the total engineering segment improved, due in part to the completion of unprofitable project. In fact, the second quarter saw gross profit ratio exceeding full-year forecast as a result of such factors as profitability improvement in domestic and overseas project. Operating income rose 4.3 billion yen to 11.5 billion yen. Ordinary income rose 1.5 billion yen to 11.9 billion yen. Profit attributable to owners of the parent decreased by 500 million yen to 3.9 billion yen. Next is the segment information. In the total engineering segment, while net sales decreased by 8.1% compared to the same period of the previous fiscal year to 178.4 billion yen, segment profit increased to 9.1 billion yen. The profit increase reflects largely through contribution of sales from LNG Canada project as well as improvement in profitability with a number of domestic projects reaching their final stages of construction with steady progress. Major projects included in the net sales figure are the Overseas Project of LNG Canada and Gas Booster in Algeria and Domestic Chemical Project. With respect to additional costs resulting from extension of construction schedule for some projects due to the spread of COVID-19, there were no further additional costs to note in the second quarter. For functional materials manufacturing segment, net sales fell 8.0% compared to the same period of the previous fiscal year to 20.1 billion yen and segment profit declined 12.8% to 2.7 billion yen. The halt in activities in the economy overall caused by COVID-19 has affected both catalyst and fine chemicals products, leading to lower demand and resulting in lower sales and profit. The achievement rate of net sales against the forecast for the fiscal year was 41% in the total engineering segment and 48% in the functional materials manufacturing segment.

Next are the consolidated balance sheets. Total assets were ¥664.2 billion, which was almost the same compared to the end of the previous fiscal year. Current assets decreased by ¥10.3 billion, primarily due to a decrease in accounts receivable from completed construction contracts, including distribution from joint ventures. On the liabilities and net assets side, current liabilities decreased by 38.8 billion yen due to decrease in accounts payable for construction contracts and advances received on uncompleted construction contracts affected by the progress of projects in the final stages. The increase of 19.6 billion yen in non-current liabilities is attributable to the issuance of bonds payable in the amount of 20 billion yen. It was applied to the repayment of the previously issued bond in October. Net assets increased by 12.1 billion yen, due largely to increase in foreign currency translation adjustment. The shareholder security ratio was 60%. Next are the consolidated statements of cash flows. Cash and cash equivalents were more or less unchanged from the previous fiscal year end at 257.9 billion yen. Cash flows from operating activities was negative 17.5 billion yen due to settlement of accounts payable for construction contracts of projects in their final stages. Cash flow from financing activities was positive due to bonds payable issuance. The next topic deals with new contracts. Orders received totaled 498.1 billion yen, comprising 468.8 billion of overseas projects such as refinery upgrading project in Iraq and 29.3 billion yen of domestic projects. With expectations for new large-scale contracts to be secured in the latter half of this fiscal year, both in Japan and overseas, we have maintained our full-year forecast of 670 billion yen. Next, we refer to our outstanding contracts. The order backlog as of the end of September 2020 was 1,264,200,000 yen. By business area, LNG-related orders accounted for 44%, falling below one-half of the total, and petroleum refining-related orders accounted for 37%. In terms of region, North American and others accounted for 39%, and Middle East accounted for 37%. The major contracts were LNG Canada and the refinery upgrading project in Iraq, both exceeding 100 billion yen. Lastly, the full-year forecast. There is no change from the forecast announced at the beginning of the fiscal year. This forecast has been prepared on the assumption that the impact of the spread of COVID-19 will not worsen significantly and that group's business environment will gradually recover towards the end of this fiscal year. In the total engineering segment, although sales for the period up to the second quarter stayed at 41% of the forecast, large amount of sales is expected towards the fiscal year end on domestic projects and some other projects due to be completed in the latter half of this fiscal year. In the functional materials manufacturing segment, sales reached 48% despite the impact of decrease in catalyst-related demand. We believe that a steady progress is made to achieve our full-year forecast. For this report, exchange rate assumption has been revised to 105 yen from 107 yen to the U.S. dollar. For reference, the effect caused by an exchange rate fluctuations per yen is around 2.5 billion yen for sales, 200 million yen for gross profit, and 400 million yen for original income. This concludes our explanation of the outline of the fiscal results for the second quarter of fiscal year 2020.

Good afternoon, everyone. I'm Sato, Chairman and CEO. Today, I'd like to talk about the current market environment and the direction of the long-term vision, Vision 2040. Firstly, as for our perspective for the business environment of JGC Group, basically, it is unchanged from what we talked to you in May. The treatment of COVID-19 is yet to be seen, and due to energy demand declines, crude oil price has been from high $30 to $40 per barrel range. Honestly speaking, we cannot see the sign of recovery of the entire global economy. As for total engineering business, steady orders are expected with the execution of capital investment in life science and renewable energy-related businesses in domestic business. But in overseas business, we are devoted to a few highly probable businesses both in oil and gas and infrastructure businesses. In functional materials manufacturing business, we have concerns for the impacts of COVID-19 and U.S.-China trade frictions. Under such highly uncertain market environment, we were able to be awarded the formal order of Basra refinery upgrading project in Iraq, with the order value of over 400 billion yen in October. It is extremely significant not only in terms of making major progress in achieving the order target of this fiscal year, but also in securing over 1 trillion yen of order backlog, which is equivalent to the sales of two years. And as President Ishizuka will talk shortly, of course it has great social significance in rebuilding Iraq. Latest orders were approximately 500 billion yen, and in the remaining half year, we will make our utmost effort to achieve the target of 670 billion yen. As you know, our group is now working on to compile a new mid-term management plan which starts from FY 2021 and its base long-term vision, Vision 2040. For the group to achieve sustainable and stable growth in the future, given the accelerated move for low-carbon and decarbonization, we need to build the earning structure which will not simply depend on overseas oil and gas segment. We have transformed into holding company structure in October 2019, and it was to realize the corporate group which will generate profit by several business domains, not depending only on overseas oil and gas business, and the direction remains unchanged.