Earnings Call: Q3 2019

Feb 6, 2019

afternoon, ladies and gentlemen. Thank you very much to participate in this meeting. Please refer to the materials we have at hand. Based on this material, I'd like to give you an overview of EBITA's financial results for the 2018. First is a highlight. We have been working on the investment for MRJ. It is within our expectation in budget, but other than that, fundamental business earnings are solid. Then about orders received, mainly due to a large order cancellation for a coal fired thermal power plant in Power Systems, we had to bear with the cancellation, so orders received decreased. However, the industry and infrastructure and aircraft, defense and space orders increased. So all in all, it is almost the same as before. So in actuality, we are able to say that orders received are unchanged. And then the profit from business activities increased in all segments. And then looking at the interest bearing debt and free cash flow, they were both improved. So compared with the previous conditions, it's much better. So the financial status of MHI is quite solid. Then on the other hand, as you are well aware, we have seen some deterioration of the order amount in Power. And then about the industry and infrastructure, the situation looks good, but still, there have been some concerns about the delay of the orders we have been expecting to next year. So we will speak about this later on. But there has been the decline of the projection by about JPY 200,000,000,000. And then we scheduled full year payout is going to be kept at JPY 130. Then allow me to share with you Page four, summary of the first and third quarter fiscal financial results. The orders received were JPY 2,479,300,000,000.0, which is a decline of JPY 96,400,000,000.0. But there has been if we just exclude the cancellations, then it is about the same as the previous hundred years. And then the revenues increased by JPY 55,000,000,000, JPY 2,099 billion. And then the profit from business activities, JPY 105,300,000,000.0, which is JPY 48,000,000,000 increase. And then profit attributable to owners of parents, 35,300,000,000.0, which is an increase of JPY 34,100,000,000.0. So as in the case of the previous time, this is the we have been using the Japanese GAAP, but in order to have good the comparison the consistencies with reservation, we have been utilizing IFRS. So if you make a comparison using the IFRS, this is a figure that I had just mentioned. EBITDA is JPY 200,700,000,000.0 and the free cash flow was JPY 154,400,000,000.0. Both were better than the previous term. And then the next is the basis for the fundamental business. So profit from business activities were 183,400,000,000.0, and then the figure is the JPY 6.93.6%. So all in all, it is very good for EBITDA and the free cash flow, it is as can be seen here. And then moving on, I'd like you to take a look at each segment for the orders received. Power Systems, JPY 756,500,000,000.0. So this is a decrease of JPY $258,000,000,000. Then about JPY 100,000,000,000 was the cancellation for the previous year. And then Industry and Infrastructure, JPY $1,368,000,000,000, which is an increase of JPY 160,000,000,000. And the so machinery, the steel machinery is increasing and also for the Aircraft and Defense and Space, the figure was JPY 381,500,000,000.0, which is an increase of JPY 31,000,000,000. So all in all, Power was decreased, but industry and the Aircraft Defense space has done well. So all in all, we are able to say that it was almost in line with the previous years. Then the for the especially for Aircraft and Defense, July, the has been changed to the 777X, so we are in the transition. So that was the reason why there was a decline in the orders, but the Power and Industry and the Infrastructure increased. So all in all, it was about increase of the about JPY 50,000,000,000. And then about the for all of them, we were able to see the increase in all segments. So there have been the cash flow improvement and balance sheet efficiency improvement and others. We are in the process of all these, and we are now seeing the fruit of all these activities. Next is the balance sheet. In the case of the MHI, we see we tend to see the expansion of balance sheet on the third quarter. Then the total figure was the JPY 5.269 which you see, increase of JPY 21,000,000,000, as can be seen here. This includes indemnification asset for South African project, which is about the JPY 52,000,000,000. So excluding this balance sheet, in actuality, it's the shrinking. So this seems to be a very good trend. Then looking at the liability side, the interest bearing debt was JPY 997,200,000,000.0. And in many cases, we have the figure over JPY 1,000,000,000,000, but this is less than that. So to a certain extent, we are able to say that interest bearing debt situation is not bad. And then for the short term, we are the funding the utilizing commercial papers and the short term borrowing, but still, this will be reversed by the end of this year. I'd like to share with you some of the main financial measures. So we had booking for the M and A related items at the beginning of this term. So there had been some disposals. So equity ratio is 26.2%, which is less than 30%, but still, it is in the sound standing. And then interest bearing debt and debt equity ratio compared with the end of the year, it is it looks like it is declining. But still, compared with the comparable period last year, it's better. So we'd like to continue, and we are confident of reducing the interest bearing debt this year. Free cash flow, as can be seen, is a figure compared to the previous term. There has been the increase of about JPY 150,000,000,000. In the second quarter, the free cash flow target was increased from JPY 50,000,000,000 to JPY 100,000,000,000. Then we are quite sure that we'll be able to achieve this goal. Moving on. Now let me move on to the breakdown by segment. I'm now on Page nine. So if you can note the orders received are shown in the figures here for Power segment. This has decreased, Industry and Infrastructure has increased. Now for the orders backlog, they are exceeding the received. And so they have been on a decline trend and power obviously has created an impact. Now what is happening to offshore wind power? Many questions have been raised by many members. And so with our JV, we do have a 50% share in our JV. And so they are in we did not include in the past. But for this quarter and onwards, we will show as reference the numbers for offshore wind power. So order backlog is JPY 900,000,000,000 as we stand. So for coal thermal is on the decline. However, renewable energy, if we combine this, then the orders backlog is pretty much on par. Let me now move on to the revenue by segment. And again, Power Systems, Nuclear Power, GTCC and Aero Engines have increased, respectively. Now for Nuclear Power, there was minimal recording last year, but we have returned back to normal. And the Aero Engines is a highlight, and so we are now recouping our efforts. And so in terms of revenue as well as profit, they are expanding. Now moving on to Industry and Infrastructure segment. For Metals, there has been a drop, but it is now on an improving trend. And we have combined our four companies. And as a result, we are now competing for third and fourth place in the global markets. And we are enjoying synergy effects as a result, and so we are seeing an all in all increase. Now moving on to Chemical Plants and Transportation Systems. There are some differences in the projects. However, they all in all have decreased. Now moving on to Aircraft, Defense and Space. Commercial aircraft, as I explained earlier, for Boeing, there has been a drop. But all in all, in terms of ratio, unlike the orders received, we are pretty much on par with last year's same quarter, and so we are progressing as scheduled. Now moving on to the profit from business activities by segment. Power, as you can note here, we have increased. And for gas turbine, after service has been a strong driver for us, and it has expanded its profit for Industry and Infrastructure, Material Handling Equipment as well as we have also seen some increase in sales as well. As for Aircraft, Defense and Space, Commercial Aircraft, the seven seventy seven, moving on to the 777X, there has been some drop as a result of this upgrade. And so although slightly, some of our profit has deteriorated. Now MRJ related activities, so you see the losses from 88,900,000,000.0 to JPY 78,100,000,000.0. So all in all, augmented together, we are seeing an increase. So based on these circumstances, if I can now move on to Page 13 and explain to you on the summary of forecast, and we have made some slight amendments in our forecast for the full year. For orders received, we announced as of the last financial announcements JPY 4,100 billion. But again, in the Power segment, we had canceled some projects and some major projects have now been extended and postponed until next year. So considering these current trends, we are seeing a drop of approximately 200,000,000,000 in Power segment. Now for Industry and Infrastructure segment, we are expanding orders steadily, but the plant that was scheduled for this year is now extending and postponed to next fiscal year. The probability of this happening is now quite high. So we are now decreasing this by JPY 100,000,000,000. So all in all, JPY 300,000,000,000 decrease has been adapted since the initial forecast. Now in terms of revenue and profit and other numbers, as you note here, we have not changed the full year forecast for FY 2018. Now if we further break this down by segment, the full year forecast, again, as you can reference on Page 15. Power industry, JPY 200,000,000,000 and JPY 100,000,000,000, respectively, dropped, so from JPY 1,500,000,000,000.0 to 1,300,000,000,000.0 for Power. And for Industry and Infrastructure as well, we have decreased the numbers. And for other segments, we have not changed the segment full year forecast. I would now like to conclude my presentation. Thank you.