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

Allow me to provide an overview of our Q1 to 3 FY 2024 Financial Results using these presentation materials. Since the materials have been released in advance, I will omit a detailed explanation and focus on the key takeaways while providing some additional details. The materials are organized according to the table of content on Slide 2. First, I would like to provide an overview of the financial results. Please refer to Slide 4 and Slide 5. This slide shows the results in several key financial indicators and highlights of the results. Overall performance during Q3 was strong, which continued to trend from Q2. Order intake from last year from FY 2022 and 2023 has increased significantly; this year exceeded even those high levels. So the increase of the order intake last year was in Defense, which was the main driver of order growth in FY 2023. Order intake in GTCC, Aero Engines and Metals Machinery increased significantly, while Defense decreased. As we expect to book even more orders from now through the end of the fiscal year, we increased the full year forecast from JPY 6 trillion to JPY 6.4 trillion. Revenue increased in all segments and both business profit and net income increased year-on-year. Based on our year-to-date performance, we have revised our full year guidance for all major financial indicators. Moreover, order intake, revenue and nonprofit items saw record highs for a Q1 to 3 period. Slide 6 and beyond provide a little more detail on our financial results. Slide 7 includes information already provided, so I will forego an explanation. Slide 8 shows the balance sheet and cash flows. Total assets increased by JPY 568.9 billion on the last year's end to JPY 6,825.2 billion. Because the yen depreciated at the end of December 2024 compared to the -- at the end of March 2024, the impact of currency translation effects related to foreign currency-denominated assets served to increase assets by JPY 90 billion. Excluding this impact, normalized total assets increased by JPY 480 billion. Allow me to provide a breakdown of the increase in assets excluding foreign exchange effects. Trade receivables increased by around JPY 150 billion, inventories by around JPY 180 billion and cash and cash equivalents by around JPY 100 billion. This kind of increase in trade receivables and inventories is typical for [ commensurate ], and we assess this is to be within the range of normal fluctuations considering that revenue is currently growing. Regarding cash flows, operating cash flow greatly improved partly due to an increase in profit as well as successful control of the year-on-year increase in operating capital. Considering the strong progress we have made versus the full year plan, we had increased our free cash flow forecast from negative JPY 100 billion to 0. Slide 9 shows factors which caused year-on-year changes in business profit. The leftmost bar shows Q1 to 3 FY 2023 business profit, which was JPY 191.6 billion. Although there were some negative factors in Q1 to 3 FY 2024, including the impact of rate increases, there were also many sizably positive factors. Revenue growth in many businesses, the effects of improved product mix and profit margins as well as the depreciation of the yen in terms of the Q1 to 3 average exchange rate served to increase business profit to JPY 264.7 billion in Q1 to 3 FY 2024. Moreover, this time, we have included a new item called losses from equity method SPC investments. This refers to a portion of onetime expenses booked during Q3 at 2 power plant operating companies, which are outlined on Slide 15. Allow me to provide some more details about the changes to one-time expenses. So this is as shown as [ positive JPY 30 billion ]. During Q1 to 3 FY 2023, we booked around JPY 40 million in one-time expenses from the PW1100G engine program as well as some unexpected claims related to some international projects. There were no large losses through the first half of this fiscal year. But unfortunately, as we are forecasting additional expenses in some international projects, we booked around JPY 10 billion losses in Q3. The difference between the rebound of JPY 40 billion in expenses from the previous fiscal year and the JPY 10 billion in losses booked this fiscal year resulted in the positive JPY 30 billion shown on this year. So basically, is that during this year, we have a JPY 20 billion buffer, but this JPY 10 billion was used at this timing. Slide 10 shows the summary of order intake, revenue and business profit by segment. Over the next slides, I will explain the situation in each segment. Please note that due to the establishment of GX Solutions in April 2024, we have made some adjustments to our reporting segments. The Q1 to 3 FY 2023 figure shown here have been retroactively adjusted to reflect these changes.

Slide 11 shows the situation in the Energy Systems segment. Order intake, revenue and profit all increased year-on-year, marking strong progress toward the full year guidance. In particular, strong order intake in GTCC continued due to booming demand in the gas turbine market. Considering the strong performance versus the plan made in each of the major businesses in this segment, we have increased our full year order intake, revenue and business profit forecast. Slide 12 shows the situation in the Plants & Infrastructure Systems segment. In the segment as well, order intake, revenue and profit all increased year-on-year, marking strong progress towards the full year guidance. The booking of large projects in Metals Machinery, Waste-to-Energy Systems and Machinery Systems contributed to a large year-on-year growth in order intake. In particular, order intake in Metals Machinery has outperformed initial projections. Based on the situation, we have increased this segment's full year order intake forecast by JPY 100 billion, and the profit forecast by JPY 10 billion. Slide 13 showed the situation in the Logistics, Thermal & Drive Systems segment, or LT&D. The segment total for order intake and revenue were slightly higher year-on-year. But when excluding foreign exchange effects, normalized revenue was down. Profit decreased in turbochargers due to the impact of production disruptions caused by issues at the supplier. Both revenue and profit were down in Logistics Systems due to a decline in units sold outside Japan. Slide 14 shows the situation in the Aircraft, Defense & Space segment. Although order intake decreased year-on-year due to the booking of several large Defense projects in Q1 to Q3 FY 2023, orders were still high compared to past levels, and performance was strong versus the full year forecast. Revenue exceeded our plan due to steady progress on the execution of our large order backlog. Profit continued to increase due to the impact of revenue growth as well as yen depreciation. Based on year-to-date performance, we have increased our full year revenue forecast by JPY 50 billion and our profit forecast by JPY 20 billion in this segment. Slide 15 outlines an important topic for Q3. This is regarding our Nakoso and Hirono Power Plant operating businesses, which we are working on as part of the Fukushima revitalization project. These 2 projects, in addition to building 2 power plants, we also had a 40% stake in the SPC special project companies have to operate the power plant. In Q3, we decided to acquire the equity stakes from 2 other companies in order to move forward with optimizations to plant operations. These plants are attempting to utilize the scaled up version of a new technology called Integrated coal Gasification Combined Cycle or IGCC. The plants have experienced several technical issues, but we recently completed a series of repair work and confirmed the efficacy of those improvements. We believe that by increasing MHI's involvement in the project overall, we will be able to further improve plant reliability. Slides 17 through 20 show the FY 2024 earnings forecast. At this time, we have revised our full year forecast in terms of order intake, revenue, business profit, net income and free cash flow. I have already explained the details of the revision, so please allow me to omit an explanation. This concludes my explanation. Thank you for your attention.