JGC Holdings Corporation

My name is Daguchi, General Manager of the Finance Unit. I will give you an overview of the first half results using the presentation material. Please turn to page 4. These are the three highlights from the first half results of FY23. Large-scale projects made progress as planned, and net sales were up year over year. Some projects, mainly executed by our overseas subsidiaries, required risk reviews, which temporarily lowered the profit margin in the first half of the fiscal year. Overseas results in new contracts remain sluggish, as we generally expect overseas projects to be awarded later in the fiscal year, while domestic project orders are steadily accumulating. Next on page 5, this is the consolidated income statement. Sales rose but profit fell over the previous year. Net sales rose by 51% year-over-year to 403.2 billion yen. Gross profit fell by 11% to 28.4 billion yen. Profit ratio declined by 4.9 points to 7.1%. This was due to lower profit in the total engineering segment. Operating profit was down by 31% to 13 billion yen. Ordinary profit fell 17% to 25.4 billion yen. The drop in ordinary income was smaller compared to that of OP due to an increase in interest income. Their income attributable to owners of the parent decreased 39% to 12.5 billion yen due to a higher effective tax rate caused by the losses in the overseas business. Page 6 shows the segment results. In the total engineering segment, net sales rose 133.7 billion yen year-over-year to 375.5 billion yen due to the progress of domestic projects related to clean energy and life science and overseas large-scale projects in Saudi Arabia and Iraq. However, segment profit decreased 5 billion yen year-on-year to 12.2 billion yen. Profit ratio also declined by 3.9 percentage points. I will explain why the profit was down. The profit ratio temporarily declined because we have reflected additional costs and risks identified in the implementation of two mid-size projects at overseas subsidiaries as a result of a project profitability review in Q2. One is the Indonesian subsidiary's project to build a new natural gas processing plant and gas pipeline, which was awarded in 2022. Due to worse-than-expected soil conditions at the construction site, we had to anticipate additional costs, including piling and soil improvement. In addition, we expect the project workload to increase due to the disruption of internal design work caused by significant design change requests and a delay in the delivery of the pipeline site. Given the status of the project, we have judged it necessary to reflect additional costs. The other one is a Saudi Arabian subsidiary's project to expand the NGO plant awarded in 2021. The design schedule for this project was delayed due to design verification process, and concerns were raised regarding the impact on the procurement, construction schedule, and cost. Furthermore, the design delay resulted in additional requests and change orders, so we decided to incorporate the possibility of additional costs to ensure delivery dates in addition to the risk of a surge in material and equipment prices. These two projects caused a provision for loss on construction contracts to be recorded in Q2, putting pressure on gross profit. We are aware that the reason for this deterioration in profitability is that while overseas subsidiaries were increasingly managing big projects in the magnitude of few tens of billions of yen, they were still in the process of building the capability to sufficiently analyze and respond to the risks involved in estimating the project's costs. Next is the functional materials manufacturing segment. Net sales increased slightly to 25.7 billion yen, but profit was unchanged at 3.7 billion yen. Sales volume of catalyst products declined despite price revisions that secured higher sales, and fine chemical products were impacted by declining demand, particularly for semiconductor-related products, which resulted in a lower profit ratio. Results in other segments are shown here.

Next, page 7 is about new contracts in the total engineering segment. The amount of new orders received in the first half of fiscal year 2023 was 158.9 billion yen. Major contracts were biopharmaceutical-related projects in Japan. Next page is about the order backlogs of the end of September amounted to 1 trillion yen. 484.9 billion yen, which decreased by 79 billion yen from the end of the previous quarter. There were no major changes in business area and region. Recently added major contracts include facilities construction in Japan for biopharmaceutical and messenger RNA vaccine ingredients. Next page shows you the financial position. There were no major changes in our financial position from the beginning of this fiscal year. Equity ratio was unchanged at 53.5%. Our portion of cash in Off-balance sheet joint venture amounted to 170.5 billion yen. Cash flows from operating activities were 16.2 billion yen. In the same period of the previous year, we received more cash partly due to a collection of receivables resulting from the settlement of past project dispute. Cash flows from investing activities were negative 13.3 billion yen, mostly due to purchases of property and equipment. Cash flows from financing activities were negative 11.6 billion yen, mainly spent for dividend payments and others. Cash at the end of the second quarter was almost flat year-on-year to 333.6 billion yen. about the forecasts for fiscal year 2023. The full-year forecast is unchanged except for the yen-dollar exchange rate, which was changed from 133 yen to 140 yen to the dollar. In terms of new contracts, the progress rate at the end of the second quarter was still 20%, but most of the new overseas projects are to be determined in the second half of the fiscal year. Sales increased steadily, but risks related to our overseas subsidiaries' projects were reflected in the second quarter and delayed the profit progress at 34%. We are now continuing our efforts to further improve profitability of our mainstay projects, and some good results are expected that we will be able to eliminate the downward pressure of those risks that affected the second quarter. As for the exchange rate impact, just for your reference, each one in exchange against the U.S. dollar would affect net sales by 2 billion yen, gross profit by 0.4 billion yen, and ordinary profit by 0.8 billion yen. This concludes my presentation. Thank you very much.

I am Masayuki Sato, Chairman and CEO. I would like to share with you our view on the current market environment and where the JGC Group stands today. Looking at the current business environment surrounding the JGC Group, in total engineering, energy demand is on the rising trend as the global economy is recovering with the pandemic behind us. Furthermore, the client inquiries if the projects are also strong, compounded by the following factors. Europe diversifying the energy procurement sources for natural gas and LNG against the backdrop of striving to reduce their dependency on Russia. And policies advocated by various countries toward low-carbon society or decarbonization, accelerating the investment plans for hydrogen, fuel, ammonia, and self-projects. In functional materials manufacturing, demand for catalysts, especially for petroleum refining catalysts, remained strong in Japan and abroad, and demand for high-thermal conductivity silicon nitride substrates for power semiconductors used in electric vehicles continued to grow. Based on client's strong inquiries in the plant market, we have set a target of 800 billion yen for orders in the total engineering business for FY23. In the first half, we received orders for large-scale biopharmaceutical plant construction projects in Japan one after another, resulting in a total of approximately 160 billion yen in orders received. As I mentioned at the beginning of the fiscal year, the outcome of large-scale projects overseas for which we expect to win the contracts this fiscal year will be concentrated in the second half, especially in the fourth quarter. The JGC Group will continue to closely monitor the global environment and market trends, selecting projects that are highly feasible with high visibility over solid earnings, and continue to strive toward achieving the order target of 800 billion yen.