JGC Holdings Corporation

I am Shinichi Taguchi from Group Finance and Accounting Department. I will walk you through the outline of financial results for fiscal year 2021. I will begin with the highlights. In this fiscal year of 2021, EPC projects made steady progress both in Japan and overseas, and large-scale projects were completed. The functional materials manufacturing segment was also a strong performer. As a result, income surpassed earnings forecasts at all stages. There are concerns that the conflict in Ukraine will affect the procurement activities in particular for long-term large-scale projects. The impact on costs due to higher material and equipment prices ordered going forward is reflected in the profitability of projects on this fiscal year's balance sheet to the extent that we can predict the costs at this point. We expect higher sales and profit in fiscal 2022. We now move to the income statement. Net sales fell 5.5 billion yen year-on-year to 428.4 billion yen, undercutting the full-year forecast by about 40 billion yen. Gross profit rose 1.5 billion yen to 45.3 billion yen. We had anticipated the risk that the conflict in Ukraine would have an impact on project costs in the fourth quarter. But in addition to the impact of the weekend, we posted additional income due to the elimination of construction risks in several projects in their last stages of construction, and as a result, gross profit surpassed four-year forecast by 3.3 billion yen. Operating profit fell 2.1 billion yen year-on-year to 20.6 billion yen. SG&A expenses were up 3.7 billion yen over the previous year, which lowered profit compared to the previous year. This increase in SG&A expenses can be attributed to the posting of 3.3 billion yen in provision of allowance for doubtful accounts in the fourth quarter and other factors. Operating profit came in slightly above the four-year forecast since the rise in gross profit observed the increase in SG&A expenses. Ordinary income rose 4.5 billion yen year-on-year to 30 billion yen. This was due to an increase in non-operating foreign exchange gains, dividends received, and the share profit of entities accounted for using the equity method, and was 6 billion yen higher than the four-year forecast. Net losses attributable to owners of the parent totaled 35.5 billion yen. This was a 6.5 billion yen improvement over the four-year forecast. Next, I will discuss segment information. In the total engineering segment, sales and profit were down year-on-year. Net sales fell 10.5 billion yen to 377.9 billion yen, In Japan, several long-term large-scale projects started this fiscal year, and construction was in the early stages, so the posting of sales was limited. Overseas, progress was made on large-scale projects but fell short of initial expectations. Even though the impact of weekend and posting of additional profit led to an increase in gross profit, segment profit fell 3.6 billion yen year-on-year to 13.2 billion yen due to higher SG&A expenses. In the functional materials manufacturing segment, sales and income were up over the previous fiscal year. Net sales increased 3.5 billion yen to 44.2 billion yen, and segment profit rose 1.4 billion yen to 7.2 billion yen. Sales of petroleum refining catalysts recovered, and the sale of surplus inventory of materials led to one-off income. In fine chemicals, demand was strong, particularly for abrasives, and some plants utilized their full manufacturing capacity. In fine ceramics, orders of semiconductor manufacturing equipment related parts increased. The results for others are as shown here.

Next page shows the balance sheet. Total assets were 694.2 billion yen, almost flat to the beginning of the fiscal year. Current liabilities increased 56.7 billion to 253.8 billion yen. The increase was due to the short-term transfer of corporate bonds and advance payments on projects in Japan. Non-current liabilities decreased due to the transfer of corporate bonds. Total net assets decreased to 387.6 billion yen as a result of posting a net loss. The shareholders' equity ratio was 55.8%. The balance of our share of cash in joint ventures, which is not posted on the balance sheet, was 239.6 billion yen. This is primarily from the joint venture for the LNG project in Canada. Next page is about cash flows. Cash flows from operating activities were 19.3 billion yen. They were positive, despite the net loss recognized for the fiscal year under review. This is because the extraordinary loss that had caused the net loss did not result in cash outflows. Cash flows from investing activities were minus 7.6 billion yen. The balance of cash and cash equivalents at the end of the fiscal year rose 19.7 billion yen to 288.0 billion yen, including a foreign exchange gain. Next is about outline of contracts. In FY 2021, we had 145.0 billion yen in new contracts overseas and 178.8 billion yen in Japan for a total of 315.9 billion yen. We had expected acquiring major projects at the end of the fiscal year, but anticipated projects were put off due to the situation in Ukraine and other factors and as a result orders fell short of the 500 billion yen target. Outstanding contracts were 1,215,000,000,000 yen. By business area, oil and gas was 42%, and LNG was 34%. By region, Middle East was 41%, Americas and others was 29%, and Japan was 21%. Major outstanding contracts are the LNG project in Canada, the oil refinery modernization project in Iraq, the biomass power generation project in Japan, and dewpoint control unit project in Saudi Arabia. Lastly, I'll explain about forecasts for fiscal year 2022. We estimate the forecast as follows. New contracts will be 840 billion yen. Net sales are estimated to increase year-on-year to 600 billion yen due to progress with large projects in Canada and Iraq and also with projects in Japan. Gross profit will be 54 billion yen due to the elimination of non-operating losses and contributions from new projects. Profit ratio will be 9.0% to reflect the impact of higher costs on project profitability. caused by the situation in Ukraine and the negative impact of the sharp rise in raw materials and fuel prices on the functional materials manufacturing business. Operating profit will be 26 billion yen. Ordinary income will be 30 billion yen, flat to the previous fiscal year. Profit or loss attributable to owners of parent will return to the black at 20 billion yen. The dividend payout ratio will be 30%, and we expect to increase dividends to 24 yen per share. The exchange rate assumption used for the forecast is 123 yen to the dollar. This concludes the outline of financial results.

I am Masayuki Sato, chairman of JGC Holdings Corporation. I would like to share with you our perception of the current market environment and the future direction of our group. The invasion of Ukraine by Russia since February has shaken the world significantly in all aspects, including politics, economy and industry. This is exactly an event which symbolizes the age of VUCA and makes us realize that as a company, we need to be prepared to be able to respond to any situations that may arise. As I mentioned in my presentation at the earnings briefing for the second quarter of fiscal 2021 held in November last year, the market environment surrounding our group began to change in the second half of last year. While the energy demand recovered in anticipation of the subsidence of COVID-19, in Europe, the lackluster output of the wind power generation and other factors have caused natural gas prices to rise as it was used to compensate for the wind power. This has led to the reaffirmation of the importance of natural gas as a transition energy source that serves as a bridge to renewable energy. In addition, the invasion of Ukraine by Russia has triggered Europe's policy of reducing its independence on Russia for natural gas imports to zero. and with energy security issues looming large in the spotlight, there has been a marked move to significantly increase LNG imports from countries other than Russia, leading to concerns about a global LNG supply shortage. Under these circumstances, oil majors and state-owned oil companies in oil and gas-producing countries, which are clients of our group's total engineering segment, began to show signs of resuming capital investments that had been held back for the past several years. Thus, the oil and gas plant market bottomed out in fiscal 2021 and now got back on the recovery track.