JGC Holdings Corporation ($1963)

I'm Taguchi, General Manager in charge of Finance and Investor Relations. I will present the outline of financial results. Please turn to Page 3 for highlights. In the Total Engineering business, we strengthened project execution capabilities and overall profitability improved due to steady progress in large-scale EPC projects, both domestic and overseas, while certain projects continue to be challenging in the fourth quarter. Operating profit exceeded expectation, though the financial results reflected the potential risks of project cost increase arising from armed conflicts in the Middle East starting from February. In addition, the dollar-yen exchange rate at the end of the fiscal year settled in JPY 159 range, significantly weaker than our forecast of JPY 150 and higher nonoperating income, including foreign exchange gains contributed to increased net profit exceeding our forecast. Regarding the dividends, we had previously forecasted a minimum dividend of JPY 40, but based on the increase in net profit, we applied a 30% payout ratio under our shareholder return policy and plan to increase the dividend by JPY 12 to JPY 52 per share. We plan to revise our dividend policy from FY 2026, and I will explain it at the end of the presentation. Please turn to Page 4. I will explain the Middle East situation. First, let me start with the business impact. In the total engineering business, the Middle East accounted for 45% of the order backlog as of the end of March 2026 and multiple large-scale projects are under execution. Under close coordination between headquarters and construction sites, we are working with careful measures to ensure the safety of all stakeholders, while none of the construction sites has suffered the direct damages from the armed conflict. We observed some impact toward the end of the fourth quarter, including slowdown in operations due to temporary vacations and site access restrictions. In addition, the continued personnel movement and logistics constraints are expected to remain as challenges in project. Consequently, various costs which were not estimated at the planning stage may arise, and we will ensure appropriate cost sharing management with clients, while contractual treatment varies by project and may require negotiation in some cases. We think that we need to take a conservative view of these risks to some extent. In the Functional Materials Manufacturing business, uncertainty has been increasing regarding the future procurement of certain raw materials at domestic manufacturing sites. Next, financial performance impact. On accounting, we estimate additional cost on a project-by-project basis related to safety measures, schedule delays and restrictions on personnel movement and logistics. After considering contractual terms with clients, including the possibility that the company may bear a portion of these costs, we recorded these costs for risks conservatively. These estimates assume that tensions, including the closure of the Strait of Hormuz will be eased in the first half of this year and that there will be no material impediments to project execution. As a result, profit margins for FY 2025 declined by approximately 1 percentage point. Turning to FY 2026 forecast. In addition to this impact, we have factored in the decrease in net sales of approximately JPY 60 billion, reflecting slower progress on certain projects in the Middle East. This decrease in net sales is expected to be recognized from FY 2027 onwards. We have also incorporated a certain level of potential impact of insufficient procurement of raw materials in the Functional Materials Manufacturing business. It is also based on the assumption of normalization in the first half of this year. Accordingly, if the closure of Strait of Hormuz is prolonged or military conflict escalates, it is possible to suffer further impact through additional responses and schedule delays. Please turn to Page 6 for consolidated income statement. Net sales were JPY 745.2 billion, down JPY 112.8 billion year-on-year. Gross profit was JPY 64.1 billion with profit ratio of 8.6%. It exceeded the forecast, mainly driven by improved profitability in EPC project in Japan and overseas. Operating profit was JPY 35.3 billion. Ordinary profit was JPY 58.1 billion, and profit attributable to owners of parent was JPY 41.8 billion. As a result, return on equity reached 10.2%. Page 7 shows segment information. Net sales of the Total Engineering business was JPY 679.5 billion, close to the full year forecast revised in the third quarter following the review of the project progress. They decreased by JPY 115.3 billion year-on-year due to the postponement of new project awards. Segment profit was JPY 33.6 billion, overall profitability improved, supported by steady execution and risk reductions across multiple large-scale overseas projects. Accordingly, results exceeded the forecast despite reflecting the negative impact such as additional costs related to risks in the Middle East situation. In the Functional Materials Manufacturing business, net sales were JPY 56.9 billion, and the segment profit was JPY 7.6 billion, which were almost in line with the forecast. Others and adjustments were also in line with the forecast. Page 8 shows outline of contracts in the Total Engineering business. New contracts in FY 2025 were JPY 250.4 billion for Overseas, JPY 158.7 billion for Domestic and JPY 409.2 billion in total. Domestic new contracts were steady, while overseas new contracts were weaker than the forecast due to the deferral of clients' investment decision on large-scale LNG project to the next fiscal year. Major new contracts in the fourth quarter included additional FLNG preliminary contract overseas as well as food-related factories in Japan. Turning to Slide 9. This shows the outstanding contracts for the Total Engineering business. As of the end of March, outstanding contracts stood at JPY 1,155.5 billion. The Middle East accounted for 45% of the total, with 5 of our major projects located in the region. Including these projects, none of the projects currently underway in the Middle East have been suspended, and all the projects are progressing with appropriate safety measures in place. Of these, the two projects in the UAE and Saudi Arabia with outstanding contracts exceeding JPY 100 billion are still in the early stages, primarily focused on engineering work. For these projects, Transportation of equipment and materials as well as construction activities are expected to ramp up going forward. And therefore, the impact of the current Middle East situation has so far been limited. Our current budget assumptions are based on the premise that there will be no disruption to project execution during the first half of the year. However, prolonged closure of the Strait of Hormuz and similar developments remain risk factors. In addition, 2 projects with the backlog exceeding JPY 50 billion and 1 project exceeding JPY 30 billion are already in their final stages. Although materials and equipment have already been delivered, the outbreak of armed conflicts affected project progress between March and April, including our efforts to enhance safety measures at construction sites and to revisit execution frameworks. Nevertheless, work is currently continuing under structures tailored to conditions at each site. And even if the current situation persists, we believe the impact going forward will remain limited. Turning to Slide 10. This shows our consolidated financial position and cash flows. Total assets increased by JPY 54.6 billion from the beginning of the fiscal year to JPY 838.7 billion. Net assets increased by JPY 38.9 billion to JPY 431.1 billion and the equity ratio was 51.2%. Our share of cash held by the joint ventures that is not recorded on the balance sheet increased by JPY 16.2 billion from the beginning of the fiscal year to JPY 109.8 billion. Operating cash flow was a positive JPY 79.8 billion, mainly due to an increase in advanced payments received for overseas projects in their early stages. Investing cash flow was negative JPY 14.8 billion, primarily due to the acquisition of tangible fixed assets, including business sites and manufacturing equipment for the Functional Materials Manufacturing business. Cash flow from financing activities turned negative JPY 10.9 billion, mainly due to dividend payments. Turning to Slide 12. This shows our earnings forecast. We expect new orders in the Total Engineering business to reach JPY 1.74 trillion. Net sales is projected to decline 10% year-on-year to JPY 670 billion. Gross profit is expected to increase 14% year-on-year to JPY 73 billion, with the gross profit margin improving 2.3 percentage points year-on-year to 10.9%. We expect profitability in the Total Engineering business to improve due to factors, including the resolution of underperforming projects. Operating profit is forecast to increase 13% year-on-year to JPY 40 billion. Ordinary profit is projected to decline 20% year-on-year to JPY 46 billion. Our assumptions are based on the stronger yen at JPY 150 to the U.S. dollar, and we expect the nonoperating foreign exchange gains recorded in the previous fiscal year to reverse into losses. Profit attributable to owners of the parent is projected to increase 10% year-on-year to JPY 46 billion, reflecting approximately JPY 20 billion in extraordinary gains from the sales of equity method affiliates. These forecasts are based on the assumption that sanctions, including the closure of the Strait of Hormuz will ease during the first half of this year and will no longer disrupt project execution. Turning to Slide 13. This shows our segment outlook. In the Total Engineering business, we forecast net sales of JPY 606 billion, segment profit being JPY 41.4 billion and the profit margin being 6.8%. We have factored in approximately JPY 60 billion in net sales downside risk associated with the slower project progress resulting from the Middle East situation. Since the majority of the Middle East-related risks assumed this time were already reflected in FY 2025 results and because negative factors are expected to decline as underperforming projects are resolved, we expect profitability to recover. In the Functional Materials Manufacturing business, we forecast net sales of JPY 55.5 billion and segment profit of JPY 6.6 billion, representing declines in both revenue and profit. On a baseline basis, performance comparable to the previous fiscal year is achievable. However, we have factored in approximately JPY 1 billion in revenue downside risk related to raw materials procurement disruptions stemming from the Middle East situation. Other businesses are expected to remain largely flat. Adjustment expenses are expected to increase by approximately JPY 2 billion due to the high R&D investments and increased digital-related investment. Now Slide 15. Finally, I would like to explain our efforts to enhance shareholder returns. In the new 5-year medium-term business plan announced today, beginning in FY 2026, we have established a new shareholder return policy. Previously, our dividend policy targeted a payout ratio of 30% with a minimum annual dividend of JPY 40 per share. We have now changed this framework to one based on dividend on equity or DOE. Through this approach, we aim to provide stable dividends regardless of fluctuations in profits while also pursuing dividend growth in line with business growth. For FY 2026, the first year of the new plan, we forecast an annual dividend of JPY 52 per share based on a DOE of approximately 3%. We aim to raise DOE to 4% by the final year of the medium-term business plan for the fiscal year ending March 2031. Regarding the share buybacks, we will continue to consider them flexibly and appropriately based not only on earnings forecast and cash flow conditions, but also from the standpoint of capital efficiency. This concludes the overview of financial results. Thank you indeed.

This is Sato. I will now present the business overview for FY 2026 and the summary of the new medium-term business plan. Please turn to Page 4. I will explain orders target of the Total Engineering business. We set FY 2026 order target at JPY 1.74 trillion with JPY 1.6 trillion overseas and JPY 140 billion domestic. Overseas major projects include Mozambique FLNG, Papua New Guinea LNG, which were postponed from FY 2025 and LNG Canada Phase 2. While the overseas order of JPY 1.6 trillion may seem large as the major projects are ones where we can leverage our past EPC execution expertise, and we have been involved from the FEED, the risk is limited. We have already secured internal resources. In Japan, in addition to SAF project for oil companies, we focus on EPC orders for pharmaceutical plants, food-related factories and nuclear-related plants, while also steadily working on our baseload maintenance business. Please turn to Page 5. I will explain the current market environment of the Total Engineering business, which is related to orders mentioned earlier. Overseas, following 2025, demand for natural gas and LNG remains solid, driven by energy security and the realistic transition to decarbonization. A large number of LNG projects across North America, Asia and East Africa exist. While in sustainability area, projects exist at the study and the planning stages, but many remain at the demonstration phase due to regulatory implementation and project economics. And the project where capital investment is realized is limited. In general industry sector, the investment plans for semiconductor-related facilities, data centers are making steady progress in Southeast Asia. In Japan, the postponement trend of investment plans for sustainability projects, including SAF continues. The government has set a target to replace 10% of aviation fuel in Japan with SAF by 2030. We expect that the framework for achieving this target will be clarified in this fiscal year, leading to the realization of EPC for SAF project. In the life science sector, food sector and the nuclear sector plans and studies are progressing. Maintenance services also see a steady level of demand each year. While no major changes in the market environment are currently observed, we need to closely monitor the impact should tensions in the Middle East persist over the long term. For EPC project currently ongoing, we will closely watch the potential impact from rising prices of materials and equipment transportation costs as well as procurement shortage and longer lead time. Regarding projects under active pursuit, including those in FY 2026, the projects covered in the previous slide will proceed as planned as of today, but we need to be watchful for potential delays in clients' final investment decisions depending on the changes in macro environment. Please turn to Page 7. I will explain the business environment and outlook of Functional Materials Manufacturing business. Results were as Taguchi explained earlier. Regarding market environment, demand for catalyst -- for petroleum refining catalysts overseas, in particular, remains strong. In fine chemical, the semiconductor and electronics markets are on the recovery track and the demand remains strong for fine chemical product in general, particularly hard disk drives and silica sol. In fine ceramics, demand for semiconductor manufacturing equipment and electronic materials for generative AI and data center is increasing, while demand for high thermal conductivity silicon nitride substrate for EVs in Europe and the U.S. temporarily declined. It will partially recover in FY 2026. We will closely monitor the situation and expand into Chinese market where demand remains strong. In Functional Materials Manufacturing business, amid prolonged Middle East tensions, the risk of raw material shortage, which will lead to procurement difficulty or longer lead time and price increase is also anticipated. We will implement countermeasures such as diversifying suppliers and purchasing alternative products. Next, I will explain the summary of the new medium-term business plan. At 3:30 p.m. today, we announced the JGC Group's new medium-term business plan, BSP 2030, which covers from FY 2026 to FY 2030. For further details, we will provide an explanation using the presentation materials for BSP 2030 at the investors meeting scheduled on May 27, Wednesday. Today, I will briefly explain the basic concept and overview behind the formulation of BSP 2030. Please turn to Page 9. First, I would like to share the thoughts and intentions I believe in creating our new medium-term business plan, BSP 2030. The business environment remains extremely uncertain. And most recently, the situation in the Middle East is having a significant impact on the global economy and the stable supply of energy. However, it is precisely during times of such change that we believe it is essential to stay close to our clients, anticipate challenges ahead of time and work together to solve them. This mindset forms the foundation of BSP 2030, our new medium-term business plan. We are a corporate group possessing a broad range of technologies across diverse business domains. By connecting and integrating technologies and expertise, both inside and outside the company, we have developed a strong ability to adapt and create new value amid changing circumstances. To achieve sustainable growth, we must leverage this strength and continue transforming our portfolio in line with our 2040 vision. Over the next 5 years, we are determined to build a solid foundation by taking on the challenge of establishing promising businesses that can succeed LNG as our next core growth driver while also strengthening our human capital. Please turn to Page 10. As stated at the beginning of the executive summary on Page 10, while reaffirming the strength I have just described, we have defined the vision we aspire to achieve by 2030 as a collaborative partner that connects technologies and tackles global challenges with anticipatory solutions. To realize this vision, BSP 2030 identifies 3 key strategic priorities. The first is continuously enhancing the competitiveness of the Total Engineering business. Here, the Total Engineering business should be understood to include not only EPC, but also upstream businesses such as FS and FEED as well as downstream businesses such as O&M and plant modification services. As the core business of our group, the total engineering business will continue to serve as an extremely important earnings pillar. However, in order to achieve sustainable growth, we believe it is first and foremost, critical to sincerely reflect on the lessons learned over the past 5 years and reestablish this business as a strong and stable source of earnings. In addition, to respond to changes surrounding the EPC supply chain environment, we will continue taking on the challenge of enhancing EPC execution methods through the utilization of digital technologies, modularization technologies and other innovations. Furthermore, by flexibly adapting our approach in accordance with changes in the business environment, market maturity and our competitive positioning, we will identify promising business domains within the Total Engineering business and strategically cultivate them into future earnings pillars. The second key strategy is accelerating growth in the Functional Materials Manufacturing business. Through BSP 2025, the Functional Materials Manufacturing business has established itself as our second core pillar. Under BSP 2030, we will further accelerate its growth by promoting the 3 priority initiatives shown here. Specifically, we will position in the semiconductor-related market, which continues to enjoy strong market growth as a key target area. By strengthening our development and marketing capabilities, we aim to generate high-margin proposal-based projects while actively expanding into overseas markets. The third key strategy is expanding the solution-based business. By solutions-based business, we refer to scalable and versatile business models that can be provided to multiple clients. As mentioned earlier, in a highly uncertain business environment, identifying and anticipating client challenges through close engagement with clients will lead directly to the creation and expansion of business opportunities. As a wide range of new technologies continue to emerge, we will develop such solutions ourselves, including through alliances with technology partners and deliver them by leveraging our group's client base. Through these efforts, we will pursue diversification of our business model and profit growth. As part of these initiatives, we are currently taking on the challenges of establishing a new business field known as biomanufacturing. Biomanufacturing aims to produce materials and products using underutilized resources such as CO2 and woody biomass as feedstocks, and we are currently engaged in related research and development activities. At present, we are participating in a national project focused on developing microorganisms required for such manufacturing processes as well as the cultivation and the scale-up while continuing our efforts toward medium- to long-term social implementations. This business represents an innovative initiative utilizing nonfossil resources as feedstocks at a time when the society is increasingly demanding the realization of a circular economy and enhanced energy security. By proactively focusing on this field ahead of others, we aim to create future business opportunities that will support our long-term growth. These are our 3 key strategies. And alongside them, we will continue strengthening the management foundation that supports their execution. Finally, as the outcome of these initiatives under BSP 2030, we aim to achieve operating profit of JPY 60 billion, net profit of JPY 50 billion and ROE of 10% or higher by 2030. We will provide more detailed explanations at our investor briefing scheduled for May 27. This concludes my presentation. Thank you indeed for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]