Earnings Call: Q1 2019

Aug 3, 2018

Thank you for waiting. We'd now like to start the MHI Financial Results Meeting for the First Quarter twenty eighteen. I'll be serving as moderator today. My name is Inoue, Senior General Manager, IR and Shareholder Relations department. Today's presenter is Oguchi, our Executive Vice President and CFO. He will explain financial results of the first quarter fiscal year twenty eighteen. After the presentation, we take questions. We are planning to close this meeting at 04:30. We ask for your cooperation in this regard. Now, Mr. Oguti, please start. Good afternoon, ladies and gentlemen. My name is Oguti. I am the CFO of the company. Here, I will provide an overview of MHI's financial results for the 2018. First, you can see a summary of the quarterly results starting today this year, as you know, we are adopting the IFRS international financial accounting system. So in the comparison, we make a comparison with the fiscal year twenty seventeen first quarter, then we try to look at the figures in IFRS accounting method. So the figures that you are seeing right now would be different from that the ones that we had seen in the past. Now please take a look at the blue shaded area, which shows the result for 2018. First quarter orders received was billion and the revenue was JPY906.1 billion. So there has been a slight increase. And then about profit from business activities, figure was JPY31.4 billion, which was the increase of JPY25 billion. And then about the profit attributable to owners of parent JPY15 billion, which is the as I said, the figure the decrease by the JPY 3,000,000,000, which is based on IFRS. So this means that there has been an increase of about JPY 18,000,000,000. So as I said, there has been an increase of revenue and profit. Then EBITDA, the JPY63.6 billion, which is an increase of JPY17.7 billion. Free cash flow, let's say, negative JPY96.8 billion, which is a change of negative JPY20.2 billion. There has been the special situation. So please note that this is almost comparable to last year. Then this year, we made some distinction. So MRA investment has been made. This has not been commercialized, so this is just an investment. So we decided to have the breakdown between the fundamental business and MRJ investment. So please take a look at this chart. So if you take a look at the fundamental businesses, about the profit from business activities, JPY54 billion and then the profit attributable to owners of plan, JPY37.7 billion, EBITDA, JPY86.2 billion, which is 9.5%. In the last several years, MHI has been focusing on the cash flow and also based on the strategic business plan, we have been working on the streamlining of the portfolio. And this way, we are seeing the results in fruits and seeing out of our activities. Now moving on to the next page. This is the breakdown of the quarterly results by segment. First is orders received. In the Power Systems segment, the orders received was JPY194.4 billion, which is a decrease of JPY32.4 billion. And this is due to the gas turbine. We do have the informally agreed upon items, but we were not able to receive orders for this term. So that's the reason why we have seen the decline by about JPY 30,000,000,000. Then Industry and Infrastructure, there has been sluggishness for the order for machine businesses, the Metals and Products and Machine and also Turbo and others, we were able to see the increase. Then about the Aircraft and Defense Base, the Tier one seven seventy seven, with the decreasing as been as planned. So that's the reason why there was a decline. So for the power and the defense, they have been the decrease, but industry was doing well. So that's the reason why in total, there has been a small increase. Then moving on to the revenue. As you can see, the power revenue was JPY $316,000,000,000, which is an increase of about JPY 20,000,000,000. Last year, well, for the first quarter and the second quarter, the Nuclear business was not very good, but we were able to see the normalization of that. That's the reason why there has been an increase. For Industry and Infrastructure, figure was JPY 445,200,000,000.0, which is about the same as the previous year. Then in the case of Aircraft, Defense and Space, Tier one, the related decline have been accounted for. And also for the Defense Equipment, again, the sales was slow. So that's the reason why there was a decline of about JPY 20,000,000,000, resulting in a revenue of JPY 150,600,000,000.0. So Aircraft, Defense and Space declined and then Power increased. So as a total, as was mentioned, there has been a slight increase compared with the previous term. Moving on to the profit from business activities. Nuclear power last year was negative, but this had to be going back to the normal situation. And also furthermore, for other segments, we were able to see the steady progress. So it was better than the previous year, which was increase of JPY 24,900,000,000.0. So the figure was JPY 25,100,000,000.0. And then the also the total figure was the positive JPY 3,000,000,000. For Aircraft and Defense, because of the $7.77 decrease, the negative JPY 12,100,000,000.0. So that means that there have been a decline of about JPY 5,200,000,000.0. All in all, the Power and Industry, they did well. So the total figure was at JPY 31,400,000,000.0, which is the increase of JPY 24,900,000,000.0. Moving on to the balance sheet situation. Please refer to the bottom chart. So first is the asset, JPY5268.6 billion, which is an increase of JPY20 billion. The South African business is progressing well. So that's the reason why we have seen the increase of the assets. And then about the trade receivables, we are steadily decreasing. So balance sheet improvement has been gaining momentum. So we are able to say that we have made the result for the streamlining of balance sheet. And then next is the total liabilities and equity. We have the we cover this for the inventories and the also trade receivables. And then in the past, we have been using the term the advances and others. So the trade receivables and then we are able to cover the entire picture. So that's something we are looking at. And then the because of the fact that this is first quarter, it is not very much imbalanced. But all in all, the balance sheet improvement has been progressing well. So this is a comparison between different years. So this is the first quarter. So please note that this we are in the very first part of the year. And then if you make a comparison at the end of the year, that's a different situation. So sometimes we have the regular figures in the first quarter. One thing that is not written here is that it's the comparison with the same period last year. Then all in all, we are able to say that there has been an improvement of the balance sheet and same holds true with the total liability and equity. And then interest bearing debt was JPY 914,200,000,000.0, which means that there had been an increase of about JPY 100,000,000,000. And then the previous year's figure is not shown here, but in the corresponding period. But we can say that there has been a decrease of about JPY 100,000,000,000. And so we are working on the improvement of balance sheet, and we're to continue working on it. So we can see that this this deserves credit. And then moving on, let's take a look at the main financial measures. First is the equity ratio, which is 26.7%, interest bearing debt JPY 914,200,000,000.0. And then DE ratio was 0.53%. So the equity ratio compared with the last year well, actually, last year was 33%. So there have been a decline of equity ratio for this year. But as you know, the merger related the development, the cost have been written off. So that's the reason why this is 26.7%. The cash flow is like this. There has been some signal or extraordinary deterioration. So it seems deteriorated. But all in all, this is very much in line with Afan. Next is the situation based on the segment. I have been talking about this for a while, just in some points. So this allow me to just omit the detailed explanation, but as the orders received, as was explained earlier, the total figure was the JPY700 billion and the sales was about JPY900 billion. So looking at the first quarter, there has been a decrease of about the JPY200 billion, the backlog. And then about the sales, same holds true as you can see here. Revenues are as shown here. In terms of the profit from business activities on the IFRS times, Power Systems, because of the negative nuclear power impact, it is negative, but was negative last year, but it has gone back to normal and there's a great improvement. And also industry has seen an improvement to cover up for the decrease in Aircraft, Defense and Space. As you can see in the red line, the red box, there's MRJ related business losses indicated. Including this, we had 31,400,000,000.0, but excluding this, we had JPY 54,000,000,000. That is the basic fundamental business earnings. So for the first quarter, this number is quite satisfactory. Next, I would like to discuss about the forecast for fiscal year twenty eighteen. I already talked about Q1 results. And based on the results that we had for Q1, for the orders, revenue, profits, cash flow and dividends, we have decided to maintain the same forecast for all of these items as we had announced at the beginning of the year. And in terms of the fundamental business, the six percent and four percent to 7% increase and the free cash flow JPY 170,000,000,000. So from orders, revenue, profit from business and profit attributable to the parent, we have JPY 4,410 JPY $420,000,000,000, JPY $250,000,000,000 and JPY 170,000,000,000. And balance sheet is still heavy and earnings are still light today. However, for the final year 2020, we would like to make a steady progress in improvement. Now for the forecast by segment, you can see on the next page, we have not made any changes to this, so I will not go into details. And after this, there are some attachment materials, so please refer to them later. So I would like to omit the explanation. This concludes my presentation.