Mitsubishi Heavy Industries, Ltd. (7011) Earnings Call Transcript & Summary

I am Hitoshi Kaguchi, Chief Strategy Officer of MHI. Today, we would like to explain initiatives in the area of energy transition, which we have positioned as one of our group's future growth engines, as outlined in the 2021 medium-term business plan announced on October 30. To begin today's presentations, I would like to introduce the parts of the 2021 MTBP related to the energy transition. In the new 2021 MTBP, we define MHI Group's mission as integrating cutting-edge technology into expertise built up over many years to provide solutions to some of the world's most pressing issues and provide better lives. By positioning our core strengths developed over time in the context of global issues and trends, we have identified 3 key focal themes that our group will drive forward to fulfill this mission. The first theme is realizing a carbon-neutral world. Climate change caused by greenhouse gases is truly a global challenge. As a leading infrastructure company, we believe that it is incumbent upon us to focus on tackling this issue. In order to achieve carbon neutrality, we will start by upgrading the efficiency of current infrastructure. We will work on decarbonization of power generation and other industries and on technologies such as CO2 capture and utilization. The energy transition, which we're going to talk about today falls under this key theme. I would like to explain briefly why I believe that MHI Group can and should be working in the area of the energy transition. The energy transition requires long-term infrastructure development such as decarbonizing large-scale power stations by incorporating hydrogen technologies. Naturally, these changes will necessitate technological developments and then the manufacturing construction of new equipment and plants will require concerted long-term efforts. To this end, we need to make the most of the technologies and human resources that we have cultivated through our many products, and we also need a financial base to support our efforts on the 10 to 20-year time scale. I believe that MHI Group uniquely possesses the technologies, human resources and financial base. Here, we show MHI Group's projected business scale in 2030. Our group plans to enhance its growth potential and significantly increase its corporate value by reorganizing its business portfolio based on 2 primary growth engines, energy transition and new mobility and logistics. In the Energy and Environment segment, we are working towards carbon neutrality by 2050, and we will drive forward a range of business initiatives in the energy transition. By 2030, we will create businesses in fields such as hydrogen and carbon capture and utilization, CCUS with annual revenues of JPY 300 billion, and we expect this area to expand further towards 2050. Finally, I would like to explain the numerical targets in the 2021 MTBP, looking at both the 3-year plan and our longer-term goals for 2030. The 2 priorities that we set under this new business plan are to improve profitability and develop growth areas. First, we are projecting that we can improve business profit margins to 7% in fiscal year 2023 by undertaking comprehensive measures to address challenges such as the recovery from the impact of COVID-19, reduction of fixed costs and scaling back SG&A. Another key management issue, which promises to generate growth is the realignment of our portfolio to one with high-growth potential through the focus on the energy transition, which we will discuss today. As I mentioned earlier, we plan to grow this area to JPY 300 billion in annual revenues through new businesses, including CO2 recovery and utilization and hydrogen. To this end, during the 2021 MTBP, we will invest JPY 90 billion in this business development and the energy transition field. And in fiscal 2023, the final year of the business plan, we aim to create businesses with JPY 50 billion of annual revenues. That concludes my introductory remarks. Next members of our senior management team will explain related areas under their responsibility. First, Mr. Hosomi, the Energy Systems CEO; and Mr. Kato, Head of Nuclear Energy Systems will explain our business strategy. In this section, we identify global trends and look at our company's vision for the energy transition as well as the solutions we provide. Next, Mr. Ito, Chief Technology Officer, will explain our portfolio of technologies. And Mr. Kozawa, Chief Financial Officer, will explain the shared foundation that supports our efforts in the energy transition. In summary, this was a brief explanation of MHI Group's vision and business initiatives and the positioning and goals related to the energy transition. The energy transition is a defining opportunity with great implications for the future of our group, and our entire group is prepared to work together to achieve this historic transition. I hope that this brief explanation may have helped to deepen your understanding of our efforts and objectives. Thank you for your attention.

My name is Hosomi, and I'm in charge of the Energy Systems business. Last month, President Izumisawa, introduced energy transition as a growth area to be developed by Mitsubishi Heavy Industries Group. Today, let me share our approach in the areas that we will focus on in the future and explain how we are going to use our core competencies and technologies to solve new social issues. With the recognition that global warming and climate change are common human issues, society is entering a period of great change. As Prime Minister Yoshihide Suga recently announced, Japan would aim to realize as a carbon-neutral society by 2050, affirming the need for decarbonization as policy, aligning with the social consensus in countries around the world. In order to achieve this goal, we need to decarbonize and electrify mobility, life and industry. This is the foundation that supports our society. Today, there are still many people in the world who need economic development and improvement of their livelihoods and the stable and affordable supply of energy is essential. It is difficult to resolve a variety of social issues in a flash, but to achieve sustainable prosperity, we must confront these issues earnestly and realize a carbon-neutral society. This is our energy transition goal. Even before the impact of COVID-19, there had been calls for the reduction of greenhouse gas emissions through the use of SDGs as drivers. However, the decarbonization of society is expected to accelerate further in the future, supported by policy measures such as the EUs measures to support economic recovery from a pandemic, the declaration by Prime Minister Suga to aim for a carbon-neutral society and the transition to an eco-friendly Biden administration in the United States. In order to realize a carbon-neutral society, while meeting the demand for energy that supports economic development, it is necessary to promote both the reduction and recovery of CO2 and achieve net 0 carbon. To achieve this, it is important not only to expand renewable energy, but also to accelerate various technological innovations. It is expected that policy measures will be introduced to encourage innovation while leveling the burden of social costs. How will the actual energy demand reflect such social trends? Shown here are the IEA sectorial energy consumption projections, which show carbon-free energy and gray energy that emits CO2 from fossil fuels. In the keywords mentioned above, the electric power sector can be read as electricity and the transport sector as mobility and the industrial sector as industry. Due to the impact of the pandemic, it is expected that the energy consumption of society as a whole will decrease in the long-term due to the promotion of energy conservation and significant improvement of energy efficiency. However, demand for electricity will increase as society promotes electrification. Decarbonization is expected to proceed most rapidly through the use of renewable energy, nuclear power, hydrogen, and others, and to be nearly carbon-free by 2050. As for mobility, EVs will become the mainstream for short distance transportation, but it will be difficult to completely electrify long distance transportation and hybrids will be promoted, along with improvements in battery performance. Ships and airplanes between continents are expected to gradually shift to carbon-free alternative fuels. As for industry, it will be a challenge to electrify all of them because many processes utilize not only electric power, but also a large amount of heat obtained by burning fossil fuels. Therefore, the IEA also predicts that while there will be a partial shift to carbon-free fuels, fossil fuels cannot be completely eliminated. In light of these energy trends in society, what scenario would it be to shift to a decarbonized society while maintaining economic efficiency, minimizing the increase in social costs. It is true that we need to expand renewable energy as society becomes more electrified. On the other hand, from an economic point of view, the power generation cost of renewable energy varies depending on the duration of sunlight and wind strength, and therefore, the power generation cost per unit also varies. Globally, regions that consume large amounts of energy are not necessarily blessed with such natural conditions. Depending on the conditions, there are differences in power generation costs, which can lead to differences in industrial competitiveness between regions. In order to use renewable energy in consuming areas, it is necessary to stabilize supply through large-scale power storage facilities and to transmit electricity over long distances, which may lead to significant increases in social costs. In addition, geographic regions that require large amounts of energy for their key industries such as steelmaking and chemicals, which consume large amounts of heat cannot use electrification to address their energy needs. In view of this, in order to promote electrification of society through the expansion of renewable energy while achieving economic efficiency, low carbon power generation solutions that complement energy storage and long distance transportation are essential. In order to promote decarbonization in areas where electrification is difficult, it is effective to switch to carbon-free fuels and recover CO2. Yet how this can be achieved without compromising economic efficiency is extremely important for the transition to a carbon-neutral world. Mitsubishi Heavy Industries Group developed its own strategy on how it could contribute to the transition to a carbon-neutral society, while curbing increases in social costs, and developed an energy transition strategy based on the challenge to new decarbonization technologies in parallel with the development of existing decarbonization solutions. The first step is decarbonization of coal and gas power plants and utilization of nuclear power generation systems. Our group's greatest strength lies in its advanced next-generation technological development capabilities. We have already put into practical use, our technology that optimizes facility operations and controls overall emissions through digitalization and expanded use of AI. We will expand the application of this AI technology to support customers in the industrial sector, where efficient use of assets, improvement of production efficiency, and promotion of decarbonization are being pursued. We believe that contributing to the growth of our customers' business will expand our group's new businesses, including supporting customers' asset operations, maintenance support and facility upgrades. Reducing CO2 emissions alone is not enough to achieve carbon neutrality. In areas where CO2 emissions are unavoidable, the importance of technologies for recovering and using CO2 will increase. Our group already has a track record in CO2 recovery, and we will continue to promote carbon recycling. We will also work to build a hydrogen value chain that meets the decarbonization needs of society by applying technologies that we have put into practice and developed in various fields. Today, there are several challenges such as economic efficiency, but the achievement of net 0 carbon by 2050 can be realistic by establishing a long-term vision and making efforts for technological innovation and business development through our accumulated resources. Mitsubishi Power has achieved the world's most high-efficiency product lines such as the development of JAC type gas turbines and IGCC. To further reduce CO2 emissions, we are introducing hydrogen, ammonia and other fuels that do not emit CO2. We have already established a target for co-firing hydrogen or ammonia with fuels such as gas and coal. This will minimize the modification of existing facilities towards decarbonization. In addition, by making the same type of gas turbine compatible with both hydrogen and ammonia firing capability, only by changing the minimum of components at our customers' existing power plants, investment in future fuel conversion can be minimized. The use of AI is also effective in decarbonizing gas and coal power generation. Our group's large-scale power generation facilities already have flexible operation capabilities that enable them to respond quickly to load fluctuations during the use of renewable energy. In addition, a battery and energy storage system can be added to the system, integrating these capabilities to realize optimum operation of the entire system. Further, our development continues to expand by adding functions into our remote monitoring and operation system, such as AI learning, the accumulated operating data and controlling the gas turbine based on the predictive model. This is leading to more intelligent plants that can increase plant flexibility and availability, lower of operating costs, improved profitability, while providing positive environmental benefits. Nuclear power is a stable carbon-free power source that will play an extremely important role in achieving carbon neutrality. We continue to seek the decarbonization of electricity through the restart of existing plants and the most advanced safety measures, increasing the understanding of the safety of nuclear power. As a new initiative, we've also started the development of a high-temperature gas furnace for hydrogen production. This has the potential to greatly contribute to decarbonization in industries that require large amounts of hydrogen such as hydrogen reducing iron making. As mentioned earlier, it is difficult to electrify all key industries such as steel and chemical plants because they also use heat. Therefore, in order to achieve net 0 carbon, it is necessary to take a different approach. As our group supports customers with not only power generation facilities, but also various manufacturing facilities, we have accumulated knowledge of the entire industry not only power, but also in heat utilization. The application of proprietary AI technologies, such as Energy Cloud, make it possible to predict market demand as well as heat and electric power, making it possible to propose optimal management of the entire plant including improvements in production efficiency from the perspective of both supply and demand. For customers who have their own power generation facilities that use steam in addition to electricity, we will support decarbonization of existing assets, such as support for fuel conversion and introduce renewable energy through the electric power market as well as supply excess electricity to customers. These solutions help minimize energy consumption, help decarbonize and improve your bottom line. To achieve carbon neutrality, it is essential not only to reduce CO2 emissions, but also to apply technologies to recover and further utilize CO2. Our group has built the world's largest CO2 recovery plant in the United States and holds the world's top share in CO2 recovery from exhaust gas. We are working on further technological innovation and development in order to expand our product lineup to support the recovery of CO2 emissions in areas where such emissions are unavoidable. To this end a specialized organization, decarbonization promotion office, was established within our group company, MHI Engineering. We already have established a wide range of solutions to meet the needs of transporting and storing recovered CO2. In addition, we are working to promote carbon recycling including the conversion of CO2 and the production of carbon-free fuels. Now that we have introduced how our group can contribute to society's energy transition with technology that has already been put into practical use, we will explain how it can be used with hydrogen and ammonia carbon-free fuels. We believe that hydrogen is the most effective carbon-free fuel to replace or supplement fossil fuels. This is because in the field where fossil fuels are currently used, there is a high possibility that they can be converted to carbon-free fuels while utilizing the equipment and systems used. The expansion of these applications will greatly expand the size of the hydrogen market, making a carbon-neutral society a reality. At present, hydrogen production is largely based on reforming and decomposing fossil fuels. But decarbonization of this production process is an essential foundation for expanding the use of hydrogen. However, it is also true that there are challenges in realizing a hydrogen society. The first challenge to realize a hydrogen society is the cost. Because hydrogen does not exist in nature and uses a large amount of energy to produce, the production cost is inevitably high. Currently, if hydrogen is produced by water electrolysis, it will cost more than USD 1 per normal cubic meter, but it will have to be lowered to $0.30. Next, in order to establish a hydrogen society, it is necessary to establish transportation and storage infrastructure in addition to manufacturing facilities. In some cases, existing gas pipelines can be used on continents, but in remote areas, storage infrastructure is also required, along with the establishment of transportation methods. Hydrogen is highly flammable and difficult to transport. So it is effective to use ammonia as a carrier. It is also necessary to secure stable demand in order to utilize hydrogen. Without increased demand and cost reductions through economies of scale, a hydrogen society could become a pie in the sky. It is difficult to solve these problems in a single phase, such as reducing manufacturing costs and we believe it is necessary to address these issues throughout the entire value chain, including the supply, transportation, storage and use of primary energy necessary for manufacturing. Our group has been conducting research and development on the use of hydrogen as a fuel and has developed various technologies. We can also supply the CO2 recovery equipment and compressors for transportation and storage that we have already introduced. Another new initiative is the equity participation in a Norwegian water electrolysis equipment manufacturer called Hydrogen Pro. Together with this company, we aim to increase the scale and efficiency of hydrogen production plants. In the U.S. State of Utah, we are collaborating with Magnum America to develop a business that aims to produce and store hydrogen for use as fuel in the hydrogen gas turbine supplied by Mitsubishi Power. To make the most of our group's technologies, we need to expand our cooperative relationship with these partners and build a new value chain of carbon-free hydrogen. As we have just introduced, we have started our hydrogen value chain activities. Practical application on mass transportation and storage of hydrogen need to be resolved. Certain regions such as Europe and the United States may move ahead where gas infrastructure such as pipelines are available. Our group also sees that the use of ammonia is an effective first step toward a hydrogen society, especially in countries like Japan. When hydrogen, H2, is converted to ammonia, NH3, and it liquefies with only a little pressure during transportation, and this liquefied ammonia can be transported even in existing LPG tankers, making it a very promising means as a carrier for transporting hydrogen. We are also developing ammonia cracking technology to separate hydrogen from ammonia by using the exhaust gas of a gas turbine and aim to supply hydrogen efficiently. Ammonia is also expected to be used as a fuel to decarbonize coal-fired thermal power plants and as a fuel for ships, and we're working to achieve this. By utilizing ammonia, which can be used as a hydrogen carrier and can be burned directly as a carbon-free fuel, we believe that a hydrogen society can be established while reducing costs. Our group possesses technologies and the products on which to build the hydrogen value chain. First is the hydrogen gas turbine. Mitsubishi Power's hydrogen gas turbines are characterized by their ability to reduce investment costs by converting existing power generation facilities that use conventional natural gas-fired gas turbines to hydrogen burning with minimal modification. In addition, hydrogen can be used in the large capacity gas turbine, which our group has a track record in, thus stimulating large-scale hydrogen demand. We have already achieved 30% hydrogen co-firing in 2018 and are proceeding with technological development in preparation for 100% hydrogen firing by 2025. Our group is also working on fuel cells and hydrogen gas engines to make carbon-free fuel available to distributed power and small and medium-sized energy users. Mitsubishi Power's fuel cells are highly efficient and can use multiple fuels such as hydrogen, natural gas and biogas. We have built up a track record in Japan and received our first overseas order in 2020. As for fuel cells, it is possible to apply the technology to an SOEC, which is a solid oxide electrolyzer cell that can produce hydrogen. And I believe that their applications will continue to expand. Mitsubishi Heavy Industries Engine and Turbocharger began developing hydrogen gas engines last year. Their products are technically viable and will be launched in the 2030s. In the steel production industry, reduction of CO2, whilst improving the production cost has been a challenge. Primetals Technologies, an MHI Group company is currently developing a hydrogen steel production system, which will reduce CO2 emissions by 80% or more compared to existing blast furnaces. A pilot plant in Austria is expected to be commissioned in 2021. In September of this year, Mitsubishi Power signed an MOU with Entergy, a southern U.S.-based utility serving nearly 3 million customers to help decarbonize their fleet. In addition to the development of a hydrogen gas turbine combined cycle power plant in cooperation with Entergy, the company will undertake comprehensive business activities, including the production, storage and transportation of hydrogen using carbon-free electricity from both renewable and nuclear power, and the study of a storage system using a large capacity battery. Earlier this year, the Singapore Keppel Group and MHI agreed to jointly study the possibility of using carbon-free hydrogen to supply electricity, air conditioning and steam to a data center planned for Singapore. In the future, it is expected that market -- the market for carbon-free data centers will increase. While in Singapore, it will be a challenge to supply the necessary energy only with renewable energy. Our solution to supply the necessary electricity, cooling and steam energy in a carbon-free manner using Singapore's main energy source, natural gas with carbon capture and utilization systems. By participating from the feasibility study stage, we are jointly studying solutions that can meet our needs. We have recently made a decision to invest in H2U investments, an Australian company promoting green ammonia business. Green ammonia will be produced using the abundant renewable energy in the region to supply for fertilizer and fuel providers. Through this process, oxygen will be produced as a byproduct, which can be supplied to steel mills in the region, also assisting further decarbonization. The aim is to increase the scale of this project and export green ammonia outside of Australia. As mentioned above, we have introduced some of our group's partnership projects. In addition to supplying technology and product, we will work with appropriate partners to meet local needs in the entire fuel value chain, from production, transportation and storage, to the use of carbon-free hydrogen and ammonia. As we recently announced, our company investors are further strengthening their partnership in the renewable energy sector. Our company acquired a stake in Vestas and decided to become involved in the management of Vestas as an industrial partner and to strengthen its competitiveness by integrating offshore and onshore wind turbines. In the Japanese market, we will continue to focus on expanding the wind power market by establishing a joint venture company with the majority in our company to fully support Vestas' sales of wind turbines. We have also reached an agreement with Danish company CIP to jointly develop an offshore wind power business in Hokkaido, and we'll work on the expansion of the Japanese offshore wind power market. There is no single path to carbon neutrality. At our group, our mission is to realize a carbon-neutral society while ensuring we protect the environment and increase the economic efficiency, stable supply and safety of energy. Mitsubishi Heavy Industries group aims to achieve carbon neutrality by 2050 by promoting a balanced, staged decarbonization process. Hydrogen is expected to play a major role in the carbon neutral society, and we will continue to refine our technologies to meet all of the challenges facing the society. In addition, while strengthening cooperation and coordination with partners, we will build innovative carbon-free fuel value chains and ensure the realization of a carbon-neutral society. MHI is determined to be a leader in contributing to a better future for society, and recognizes the critical importance of achieving our goal of net 0 carbon emissions by 2050. Thank you very much.

My name is Akihiko Kato, Head of Nuclear Energy Systems. I would like to explain to you MHI's contribution to decarbonization with nuclear energy. Nuclear energy is a carbon free, large-scale and reliable power source that also serves an important energy security role from the perspective of baseload power. Therefore, we believe it is essential that nuclear energy utilization is maintained and expanded in the future in order to achieve carbon neutrality by 2050. With this understanding, I will explain our nuclear energy business and our current initiatives on Page 2 of this slide. First, in the coming years, MHI will focus on the restart of existing plants and installation of specialized security facilities. In parallel, we will work on the development of a new light water reactor design, aiming for commercial use by the mid 2030s. We will contribute to a significant reduction in CO2 emissions in the power generation sector by maintaining a certain level of carbon-free nuclear energy. In addition, we will develop new type reactors such as small modular reactors, high-temperature gas-cooled reactors and fast reactors in order to satisfy diversifying needs. Furthermore, from a long-term perspective, we will work to make fusion reactors a reality, which is considered the dream energy source. As introduced on this slide, from a long-term perspective of 2050 and beyond, MHI will steadily proceed with its business in order to realize decarbonization by effectively utilizing nuclear energy, a power source that does not emit CO2. Now I would like to explain each of our nuclear businesses in more detail. First, I will explain our current initiatives. The restarting of existing plants and the construction of special safety facilities. Coming out of the Fukushima accident, Japan's regulatory safety requirements for nuclear power plants are now the highest in the world. In order to satisfy these requirements, we have been supporting our utility customers through safety analysis, seismic analysis and tests. In addition, we have strengthened the safe operation of nuclear power plants by increasing the reliability of the power source through means such as installing emergency gas turbine generators. We have also carried out construction of additional safety measures to improve resilience to natural disasters such as earthquakes and tsunamis. As of today, we have achieved the restart of 9 PWR plants, which were all constructed by MHI. Moreover, we are currently constructing large-scale specialized safety facilities, as shown on the right-hand side of this slide. We will continue to help enable the swift restart of not only PWR plants, but also BWR plants through the implementation of many safety measures and the construction of the specialized safety facilities. The safe and stable operation of restarted nuclear power plants is of the utmost importance. After restart of the plant, we will provide major maintenance works, aiming for plant life extension to 60 years. This slide shows some examples of major maintenance work we envision. We will support the replacement of major components such as core internals and steam generators. Additionally, control board replacements will enable the modernization and incorporation of the latest digital control system technologies. Additionally, MHI provides valuation services that are essential to continuously improve safety and maintenance services using state of the art technology. Through these measures, MHI will support utility companies and contribute to the safe and stable operation of these plants. The establishment of a nuclear fuel cycle is also important for the ongoing and continuous use of nuclear power. Please refer to the illustration on Page 5. The fuel cycle represents the flow in which spent fuel used at the power plant is transported to a reprocessing plant for reprocessing, followed by MOX fuel fabrication. And finally, MOX fuel is supplied to the power plant again. The fuel cycle is essential for effective and efficient utilization of nuclear fuel resources. In order to establish this cycle as quickly as possible, MHI is working on construction at Rokkasho Reprocessing Plant and MOX Fuel Fabrication facility, J MOX, as a lead contractor. In addition, MHI has already received certification for spent fuel casks, which is a means for interim storage before repurposing of the spent fuel and has completed preparation for mass production of these casks. We will move forward with engineering and manufacturing of the casks based on the plans of the utility companies. In this way, we will support utilities through maintenance planning by providing safe and stable operation of Rokkasho Reprocessing Plant after its commissioning. From Page 6 of this presentation, I will introduce our initiatives in future nuclear technologies. First of all, I would like to explain what we are doing in the development of a new model of light water reactor. MHI believes that nuclear energy will remain a necessary power source, both now and into the future. This is why we are working on the research and development of a reactor type with the world's highest level of safety using evolutionary technologies and achieving high economical efficiency, all while taking into account feedback received from discussions with the utility companies. In response to the Fukushima accident, we not only reinforce safety measures for all types of hazards, but also developed an entirely new safety concept by incorporating the latest knowledge in evolutionary technologies. One example of this is being able to avoid the need for evacuation of residents near the plant in case of an emergency. This innovative safety concept prevents radioactive materials from being released outside the power plant and so avoids the spread of radioactive materials beyond the plant, and therefore, the need to evacuate residents even in the unlikely event of an accident. Considering the solid and existing nuclear supply chain in Japan that has been built up over many years, we will work to develop this new type of reactor with the world's highest level of safety, aiming for its commercialization in the mid 2030s. Secondly, I would like to talk about new-type reactors coming in the future. Nuclear power has huge potential, for example, in heat utilization and for independent power supply to isolated remote areas, islands and even in space. MHI will develop new-type reactors under the Japanese government's innovation program in order to meet the diversifying needs of the market. Please refer to the figures on Page 7 of this presentation. The left-hand side of this slide shows small modular reactors and micro reactors. These reactors can be used not only as a distributed power source for small grids, but also as a means to supply power to disaster stricken areas, remote areas, islands and outer space. MHI continues working on the development of such reactors. The right-hand side of the slide shows a high-temperature gas cooled reactor. This reactor uses a heat source with a temperature of 900 degrees C or higher to stably produce a large amount of hydrogen. As an example, the produced hydrogen can then be used for hydrogen reduction in steelmaking, which will have positive effects for the decarbonization of industry. We will promote technological development in collaboration with the steel industry. Please look at the images on Page 8 of this presentation. In the left-hand column, you can see a fast reactor. Fast reactors differ from light water reactors, and they use nuclear fission energy from fast neutrons to generate electricity. For this reason, fast reactors can effectively and efficiently use nuclear fuel resources and reduce the volume of high-level radioactive waste. It is desirable to have multiple technical options in order to make effective use of nuclear power. MHI has been selected by the Japanese government as a core company for fast reactor development, and we are promoting development under the national budget including international cooperation. On the right-hand of the slide is an explanation of fusion reactors. We are currently involved in the ITO project for which we are fabricating major components, including toroidal field coil for the first time in the world. The photograph at the bottom of the slide was taken at the completion ceremony of the manufacturing of the toroidal field coil this January. We are proud that our technical capabilities are being leveraged for high-precision manufacturing of large components. We plan to be actively involved in the journey to achieve realization of fusion reactors. With this, I would like to end my explanation of the activities of MHI's nuclear business to help realize a carbon-neutral world. With the pride of a leading company in the nuclear industry, we will steadily promote technological development and practical application toward decarbonization.

I'm Ito, CTO of MHI. I will talk about the fundamental technologies supporting the energy transition. MHI Group creates technological synergies by leveraging the diversity of its products and accumulating and utilizing superior technologies and knowledge in the shared technology framework. As an example of technological synergies, I will outline conversion to hydrogen in the next slide. Fuel conversion to hydrogen is an important driver for the energy transition. Hydrogen is a difficult fuel to handle, but MHI group has many years of experience and its use. First, the fuel for rocket engines is liquid hydrogen. We also have an overwhelming share of the global market for gas turbines powered by by-product gas from steel works and refineries. This byproduct gas fuel contains hydrogen in various proportions and we have more than 50 years of experience in this area. We can increase power generation efficiency of gas turbines by increasing combustion temperature. However, when hydrogen is burned at a high temperature, a flashback phenomenon occurs. This causes flames to enter the inside of the machine, which causes combustion vibrations that shake the machine violently. If this happens, the machine will break in a few seconds. It is also necessary to reduce NOx emissions, which increase with higher temperature. Our company's gas turbines have been successfully operated with more than 30% hydrogen in the fuel at combustion temperatures exceeding 1,600 degrees C. The key to achieving this is how to predict and understand combustion conditions. This slide introduces technology for stable combustion of hydrogen at ultra-high temperatures. Currently, MHI Group's gas turbines are among the most efficient in the world with the largest global market share as of the first half of 2020. Firstly, this shows combustion prediction technology cultivated in technological development of 1,700 degrees C class gas turbine. The upper right figure shows an analysis of the combustion condition inside the gas turbine combustor. This analysis uses a technique called large eddy simulation and uses a proprietary combustion model to analyze dozens of combustion reactions in millions of a second. Parallel computing is performed using several thousand high-speed computers owned by our research and innovation center. This is a large-scale analysis equivalent to 1/10 of the power of a K Supercomputer. In the lower right figure, 16 combustors are modeled and combustion vibration is analyzed. In addition, the use of the acoustic damper shown in the figure on the right suppresses combustion vibrations and ensures stable operation even at ultra-high temperatures. This technology was actually applied to the main engine of a rocket, achieving stable hydrogen combustion at around 3,000 degrees C. This slide explains the verification process. Ideas discovered by combustion simulation are validated by laboratory level element verification. Next, as a component verification test, a high-pressure combustion test at about [ 30 bar ] is conducted. By 3D CT scanning of the light emitted from the flame, the detailed combustion state is ascertained and unstable areas are extracted. The combustion test facility is an improved version of the original combustion test facility for supersonic integral rocket ramjet. As for the verification of the actual machine, a special sensor with the scale of 3,000 points accurately gross phenomena occurring inside the gas turbine. It will take 8 months to prepare. The operation pattern of this plant changes based on Kansai Electric Power's daily operating instructions. New developed parts are incorporated and the ability can be evaluated under severe commercial operation. For researchers and designers, this is a test without any excuses. The old demonstration power generation facility at the back of the photograph was the first in the world to commercialize 1,500 degrees C and 1,600 degree C class gas turbines, completing their 23-year service. While functioning as a verification facility at achieved high availability at over 99.5% for commercial use. This development process can only be adopted by MHI Group, which has advanced measurement technology and demonstration power generation facilities. We have confirmed stable combustion of 30% hydrogen mix fuel at 1,600 degrees C in J type gas turbine combustors and the NOx emissions are also within the operational range. The supply of 30% hydrogen fuel is a test limitation and will lead to 100% hydrogen combustion in the future. It can be used in any plant from the old 900-degree C class to the latest 1,650 degrees C class and can burn hydrogen with almost no hardware change. The 30% co-firing of J type gas turbines is equivalent to 200,000 kilowatts, which corresponds to 1 million hydrogen powered vehicles. You might have a question about how to procure a large amount of hydrogen. The following is an example of a solution proposed by MHI Group. Surface electricity from renewable energy, which will increase in the future, will be sent back to existing power plants using existing grids and hydrogen will be produced in the plant. If it is mixed with conventional fuel in a power plant, hydrogen co-combustion becomes possible immediately. It does not require the liquefaction or transportation of hydrogen. So it can be said to be the most economical way to popularize hydrogen. This is an energy transition that makes the most of existing infrastructure. This slide describes SOFC, a distributed generator. SOFC is a device that generates electricity directly from hydrogen. SOFC is already used by many customers in combination with micro gas turbines. For practical application, the analysis technology coupling chemical reaction, electricity and thermal flow is applied. Electrolyte ceramics are made of the same material as gas turbine thermal barrier coatings. Although not well known, SOFC can also produce hydrogen. With a single device, hydrogen can be produced using surplus electricity from renewable energy, and it can be returned to electricity by itself. It can be set to be a form of distributed power generation facility after the introduction of large amounts of renewable energy. The shared technology framework has launched 3 new initiatives to realize innovation while creating such technological synergies. First is the innovation promotion research institute. From new research areas such as quantum mechanics, we will develop leading-edge technologies that will overturn existing assumptions. It is the research and development of innovative technologies with dreams that have a major impact on society. By collaborating with internal and external researchers and working from the basic stage, we will accelerate future practical applications. Next, we have established YHH, Yokohama Hard Tech Hub as a space for co-creation with start-ups. It is equipped with the infrastructure for test production and trial and error of implementation, and the research is mainly focused on hard technology. Several start-ups have already started their activities there. We will accelerate commercialization by adding our group's technologies facilities and human resources, and we will acquire the ability to think as an innovator. The third is the introduction of pivot development to broaden horizons. We have introduced the system in which researchers can develop and test their own hypotheses based on their own ideas. The conditions are that you can express your ideas in your own words and that you break down technological issues into smaller pieces and work on them at a speed that surpasses start-ups. Within a few months, we launched more than 300 new themes. In this process, failures are also accumulated as good hypothesis testing data. I will wrap up. In the shared technology framework, there are fundamental technologies in many fields, which I was not able to touch upon. Combining these with a wide range of product experiences, creates technological synergies. We also want to accelerate the energy transition by developing leading-edge technologies through 3 new initiatives. This concludes my presentation.

I am Hisato Kozawa, Chief Financial Officer of MHI. So far, we have explained various business initiatives and our strategies in the area of energy transition. In this part, I will explain the financial strategies we have put in place to support and accelerate our efforts in the energy transition. As shown on this slide, which was used in the 2021 MTBP announced on October 30, MHI Group will focus its investment on new areas such as energy transition in the amount of JPY 180 billion during the 3 years of the MTBP starting from next fiscal year. To give some perspective, our investment into growth areas, excluding the SpaceJet business in the preceding 3 years fiscal year '18 to '20 was JPY 80 billion. So we are planning to more than double the investment into growth areas in this next business plan. In the energy transition-related investment that we talked about today, JPY 90 billion will be spent in new areas such as hydrogen production technologies and CCUS. If we include investment towards efficiency and performance improvements of generation technologies, which are part of our existing businesses, that will also grow. Our investment into the energy transition area would approximately be JPY 200 billion over the next 3 years. We are proud that MHI is among the very few companies that would both have a wide range of business opportunities in the area of energy transition and the capability to invest in those areas at the same time. This month, we issued our first ever green bond, which connects investors, who are deeply interested in this energy transition area, with MHI's unique position and experience in this field. The proceeds from this bond will be used to develop business opportunities in energy transition, including wind, hydrogen and geothermal power generation facilities and businesses. We believe green finance, such as this green bond and transition finance are not merely means of financing for investments, but present us with valuable opportunities for dialogue and communication with investors and society at large. Through continuous dialogue with investors and our broader stakeholders, we will enhance corporate value by accelerating our energy transition efforts and utilizing financing arrangements appropriate to these areas. Now that we have explained the main components of our energy transition strategy, I would like to conclude with a summary of the key points. In order to realize a carbon-neutral world, it is essential that we develop energy transition solutions that are economically viable. In addition to the technological capabilities and successful commercial references that MHI Group has cultivated over many years, we will also utilize external partners to provide practical solutions to globally pressing issues and therefore, achieve growth. The energy-related divisions, including thermal power and nuclear power are main pillars of MHI Group's earnings. One of the most important factors for our future growth will be how to respond to the energy transition, which is aimed primarily at addressing global climate issues and through our response, how to generate business opportunities and profits. Looking ahead, we will continue to execute the steps covered by today's presentation to achieve growth. Through these initiatives, we will also drive forward the recognition of our business portfolio. Importantly, as for the recovery and strengthening of profitability, we are already implementing SG&A reduction efforts, including reduction of fixed costs. As CFO, I am committed to supporting our energy transition efforts and to contribute to the realization of a carbon-neutral 2050, while enhancing corporate value by effectively allocating funds and actively investing while balancing short, medium and long-term profitability and financial stability. Thank you for joining us today. This concludes our presentations. [Statements in English on this transcript were spoken by an interpreter present on the live call.]