JGC Holdings Corporation

This is Sun Taeguchi, General Manager, Group Finance and Accounting Department. I am pleased to explain the outline of the second quarter, FY 2021. Allow me to begin with slide 3. This shows the highlights for the second quarter. Total engineering segment. Thanks to the sure execution on our side, we had several projects having improved profit Profit margin went above the assumption we had in the beginning of the fiscal year. Functional Materials Manufacturing In this segment, demand is continuing to recover particularly in fine chemical. With this, it has become more apparent this business is growing both in sales and profit. Our negotiations with the client for the Excess LNG project resulted in a settlement based upon the final agreement. We were able to finish the number within the range of the extraordinary loss posted in the first quarter. Next, please look at slide 4 on the consolidated income statement. Net sales was 217.9 billion yen, up 18.5 billion yen year-on-year. Gross profit was 20.8 billion yen, down 700 million yen. Operating profit was 10.3 billion yen, down 1.1 billion yen. Profit declined due to the large one-time increase in profit in the same quarter previous year, but profit ratio became 9.6%. above the 8.1% we had forecasted in the beginning of the year. Original income was 12.6 billion yen, up 600 million yen year-on-year. This was driven mainly by the increased profit in investment based upon equity method as well as the decline in the loss by foreign exchanges due to the cheaper yen. Pure net loss attributable to owners of the parent was 48.4 billion yen on the quarterly basis. We booked extraordinary loss for the excess related loss, so we are showing the final loss number here. Next slide 5. This shows information by segment. Total Engineering This segment is surely increasing the number of the projects at hand. Net sales was 195.6 billion yen, up 17.1 billion yen year on year. Its segment profit was 7.1 billion yen, down 1.9 billion yen. The major contributing projects were an LNG project in Canada, a floating LNG project in Mozambique, a refinery project in Iraq, and a biomass power plant in Japan, among others. Functional Materials Manufacturing Its sales and profit grew thanks to the recovery in the domestic demand here in Japan. Net sales was 21.4 billion yen, up 1.2 billion yen. Segment profit was 3.7 billion yen, up 1 billion yen. Please refer to the numbers in others for your reference. Select 6 shows balance sheet. Total assets became 651 billion yen, down 51.4 billion yen from the beginning of the year. The provision posted in the first quarter was liquidated as a result of the final resolution reached in the negotiations with the client for the excess LNG project. Due to the posting of the final loss from the extraordinary loss posted for the excess LNG project, net assets went down compared with the end of the previous fiscal year.

The shareholders' equity ratio was 55.9%, showing the solid financial condition. The balance of our share of cash in joint ventures, which is not posted in the balance sheet, was 202.6 billion yen. Slide 7 for cash flows. The balance of cash and the cash equivalent is down 9.1 billion yen from the beginning of the fiscal year to 259.1 billion yen. Cash used in operating activities amounted to 4.8 billion yen. This negative cash flow is primarily due to the payments from advances received in previous fiscal year as a result of the progress made with the construction in the total engineering segment. Cash used in investing activities was 3.9 billion yen due to investment in corporate venture capital, capital investment related to the functional materials manufacturing segment, and DX related investment. Cash used in financial activities was 0.9 billion yen due to dividend payment and others. Slide 8 for new contracts. We forecasted 500 billion yen in new contracts for the full year and have reached 123.9 billion yen in new contracts. For overseas clients, investment decisions on the large-scale anticipated project are expected later in the fiscal year, and the new contracts only amount to 13.4 billion yen. In Japan, orders were strong with approximately 70% of the full-year forecast of 110.4 billion yen achieved. Major project includes the construction of a pharmaceutical plant. Slide 9. Outstanding contract. The order backlog as of the end of September 2021 was 1,128.7 billion yen, down slightly since the end of the previous fiscal year. By business area, orders related to oil and gas accounted for... 41% and related to LNG accounted for 36%. By region, the orders backlog increased to 22% in Japan, but decreased to 32% in Americas and other where sales achieved. Finally, slide 10 for forecast for fiscal 2021. We have raised our forecast for income due to the higher than expected income the first half in the total engineering segment and the trend for higher income due to the recovery in demand in functional materials manufacturing segment. There has been no change to our forecast for new orders, net sales, and dividends. and the exchange rate of 113 yen to a dollar has been used in this forecast. We expect the impact of 1 yen fluctuation in the exchange rate to be 3 billion yen for sales, 0.3 billion yen for gross profit, and 0.4 billion yen for ordinary income. This concludes the overview of the financial results.

This is Masayuki Sato, Chairman of JGC. I am pleased to share our recent market environment as well as our outlook going forward. We announced our long-term management vision and our medium-term business plan back in May. Six months have passed since then. Though now we are faced with big changes in our current times, it is still possible to predict long-term structural changes to some extent. We now committed ourselves to our long-term vision. We have judged any group, purpose, or enhancing planetary health as our milestones. We are here now to solve three social issues, namely realizing both stable supply of energy and decarbonization, efforts to reduce environmental footprint in resource use, and building and maintaining infrastructure services to support human lives. Over the past six months, at COP26, the advanced nations announced their efforts to phase out coal-fired power in the 2030s, and the world as a whole do so in 2040s. A total of 46 countries agreed to this. excluding Japan, the U.S., China, and India. We are reminded again the world of energy is further progressing toward low-carbon and decarbonization. Mr. Shizaka will explain our efforts later how JGCN group is responding to such a movement. Hydrogen, fuel ammonia, sustainable aviation fuel, chemical recycling, and others are now considered as engines for future growth for all our business groups as defined in our medium-term business plan. We believe that we are making a steady progress toward that end. In terms of the energy demand for the entire world, we do feel changes are actually taking place in the past six months. Since last year, the global energy demand has continuously dampened by COVID-19. But nowadays, we are observing the infections are settling down, and with the financial stimulus policy support by some countries, though the situation varies from one country to another, we are now observing the global economy as a whole moving on recovery trend, and energy demand is recovering.