Earnings Transcript for 7011.T - Q1 Fiscal Year 2024

Hisato Kozawa: Good afternoon. Allow me to summarize the first quarter results using the presentation materials. So the materials are organized according to the Table of Contents on Slide 2. First, I will provide an overview of the financial results. Please refer to Slide 4. This slide shows the results in several financial indicators. Slide 5 summarizes the highlights. This quarter was generally in line with the plan. Order intake, revenue and profit all increased year-over-year. Order intake has increased significantly from the first quarter of FY 2022 to first quarter of FY 2023, but order intake exceeded even these levels in this first quarter of this fiscal year. Although Defense order intake, which was the main cause of increased orders in Q1 FY 2023, declined, orders in the Energy Systems segment led by GTCC grew significantly. Progress versus the full year forecast was around 32%, a relatively strong start. Both business profit and net income increased year-over-year. Notably, business profit increased by 61%, as I will explain later on Slide 9. Order intake, revenue and profit all achieved record highs for the first quarter. Slide 6 provides a little more detail on the financial results. Slide 7 includes information already provided, so I will forgo an explanation. Slide 8 shows the balance sheet and cash flows. Total assets increased by JPY 401.7 billion from the end of FY 2023 to JPY 6.658 trillion. Approximately JPY 140 billion of this increase was due to currency translation effects related to foreign currency denominated assets due to depreciation of the yen. Excluding this, cash and cash equivalents were slightly less than JPY 140 billion and inventories were approximately JPY 100 billion. It is normal for inventories to increase in the first quarter, and we believe this is within the range of normal fluctuations taking into account the fact that our revenue is growing. Regarding cash flows, although investing cash flows increased significantly due to expenditures related to the acquisition of an office building in Tokyo, free cash flow improved by JPY 14.1 billion year-over-year due to -- in part to an improvement in operating cash flow arising from higher profit results. Slide 9 shows factors which caused year-over-year changes in business profit. On the left bar, in the first quarter FY 2023, business profit was JPY 51.9 billion. Although there were negative factors in Q1 FY '24 such as decline in gains on asset sales and personnel cost inflation, these were mostly offset by the benefit of the weak yen. Increased revenue in each business segment, in addition to improvements to product mixes and profitability, served to increase profit to JPY 83.5 billion in the first quarter of FY 2024. Slide 10 shows a summary of order intake, revenue and business profit by segment. I will now explain a little about each segment. Due to the establishment of Green Transformation Solutions in April of this year, we have made some adjustments to our reporting segments. Please note that our figures for the Q1 FY 2023 financial results are shown here retroactively adjusted to reflect these changes. Slide 11 shows the situation in the Energy Systems segment. Order intake, revenues and business profit increased year-over-year, showing a good start in terms of progress versus the full year forecast. In particular, order intake in GTCC has been strong since last year. In Steam Power, revenue decreased in line with expectations due to the phasing out of new installations in coal-fired thermal power, but business profit increased due to a steady pipeline of service work. Slide 12 shows the situation in the Plants & Infrastructure Systems segment. In this segment, order intake, revenues and business profit all increased year-over-year, showing a good start in terms of the progress versus the full year forecast. The signing of a contract for a waste-to-energy system for Yokohama City contributed to orders in the environmental system business, which sits in the Others category. Slide 13 shows the situation in the Logistics, Thermal & Drive Systems segment, or LT&D. Order intake and revenue increased slightly year-over-year, but revenue excluding the impact of the weak yen actually decreased. Business profit decreased in Turbocharges due to production disruptions caused by issues at some of the suppliers. Revenues in HVAC decreased due to a drop in revenue in Europe. Slide 14 shows the situation in the Aircraft, Defense & Space segment. Order intake decreased year-over-year due to the several large defense orders flipped in Q1 FY '23. However, Defense order intake is still at a high level compared to the previous year, and there's been a steady progress versus the full year forecast. In terms of revenue, there was steady progress in execution of our large backlog. Business profit increased significantly due to the impact of the weak yen in addition to the effect of higher revenue. Slide 15 to 17 shows the FY 2024 earnings forecast. Since there's been no change from May's announcement, I will omit a detailed explanation. Overall, there were no major surprises in the first quarter. And I believe that we had a steady and strong start in terms of progress versus the full year plan. Although the financial market has been volatile over the last few days, aside from the generalistic nature of fluctuations, the actual values are still within the range of assumptions made at the beginning of the fiscal year. We will continue to steadily implement the various initiatives to achieve the full year targets. That concludes my presentation. Thank you very much.

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