Mitsubishi Heavy Industries Ltd

TSE:7011

Earnings Call Transcript 2019-Q1

[Unknown Executive]

Thank you for waiting. We'd now like to start the MHI Financial Results Meeting for the First Quarter 2018. I'll be serving as moderator today. My name is [ Hiroe ], Senior General Manager, IR and Shareholder Relations Department.

Today's presenter is Koguchi, our Executive Vice President and CFO. He will explain financial results of the first quarter fiscal year 2018. After the presentation, we'll take questions.

We are planning to close this meeting at 4:30. We ask for your cooperation in this regard. Now Mr. Koguchi, please start.

[Masanori Koguchi, executive]

Good afternoon, ladies and gentlemen. My name is Koguchi. I am the CFO of the company. Here, I will provide an overview of MHI's financial results for the first quarter of fiscal 2018. First, you can see a summary of the quarterly results. Starting today, this year, as you know, we are adopting the IFRS, the international financial accounting system, so in the comparison -- we make a comparison with the fiscal year 2017 first quarter, then we try to look at the figures in IFRS accounting method. So the figures that you are seeing right now will be different from that -- the ones that we have seen in the past.

Now please take a look at the blue shaded area, which shows the results for 2018 first quarter. Orders received was JPY 707.1 billion and the revenue is JPY 906.1 billion, so there has been a slight increase. And then about the profit from business activities, figure was JPY 31.4 billion, which was an increase of JPY 25 billion, and then about the profit attributable to owners of parent is JPY 15 billion, which is the -- as I said, the figure decreased by JPY 3 billion, which is based on IFRS. So this means that there has been an increase of about JPY 18 billion. So as I said, there has been an increase of revenue and profit. Then EBITDA, the JPY 63.6 billion, which is an increase of JPY 17.7 billion. Free cash flow was negative JPY 96.8 billion, which is a change of negative JPY 20.2 billion. This has been the special situation, so please note that this is almost comparable to last year.

Then this year, we made some distinction. So MRJ investment has been made, this and the fact, 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 profits from business activities is JPY 54 billion, and then the profit attributable to owners of parent is JPY 37.7 billion. EBITDA, JPY 86.2 billion, which is 9.5%.

In the last several years, MHI has been focusing on the test roads 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 improve, 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 JPY 194.4 billion. This is a decrease of JPY 32.4 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 billion. Then Industry & Infrastructure, there has been sluggishness for the order for the machine businesses, the metals and [ products production ] and also, turbo and others, we were able to see the increase. And then about the Aircraft, Defense & Space, the Tier 1 777 was decreasing as been as planned. So that's the reason why there was a decline, so for the Power and Defense, there has been a 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 billion, which is an increase of about JPY 20 billion. 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 & Infrastructure, figure was JPY 445.2 billion. It is about the same as the previous year. Then in the case of Aircraft, Defense & Space, a Tier 1-related decline has 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 billion, resulting in the revenue of JPY 150.6 billion. So Aircraft, Defense & Space declined and then the Power increased. So as a total, and as was mentioned, there has been a slight increase compared with the previous term.

Moving on to the profit from business activities. The nuclear power last year was negative, but this had gone 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 the increase of JPY 24.9 billion. And so the figure was JPY 25.1 billion. And then also, in total figure was net positive JPY 3 billion. For Aircraft and Defense, because of the 777 decrease, negative JPY 12.1 billion. So that being said, there had been a decline of about JPY 5.2 billion. All in all, the Power and Industry, they did well, so the total figure was that JPY 31.4 billion, which is an increase of JPY 24.9 billion.

Moving on to the balance sheet position. Please refer to the bottom chart. So first is the assets, the JPY 5,268.6 billion, which is an increase of JPY 20 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 good results for the streamlining of balance sheet. And then next is the total liabilities and equity. We have covered this already, 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 because of the fact that this is first quarter, it is not very much in balance 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 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 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 914.2 billion, which means that there had been an increase of about JPY 100 billion. And then the previous year figure is not shown here, but -- in the corresponding period, but we can say that there has been a decrease of about JPY 100 billion. And so we are working on the improvement of balance sheet and we are to continue working on it, so we can see that this is service-graded.

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 914.2 billion. And then D/E ratio was 0.53. So the equity ratio compared with the last year -- well, actually, last year was 33%. So there has been a decline of equity ratio for this year, but as you'll note, the major related development, the costs had been written off so that's the reason why this is 26.7%. The cash flow is like this. There's been some signal or the extraordinary deterioration, so it seems deteriorated but all in all, this is very much in line with our plan.

Next is the situation based on the segment. I have been talking about this for a while. Just some points. So this -- allow me to just omit the detailed explanation. But the orders received, as was explained earlier, the total figure was JPY 700 billion and the [ health ] was about JPY 900 billion. So looking at the first quarter, there has been a decrease of about the JPY 200 billion at the backlog. And then about the sales, same holds true as you can see here. And revenues, as shown here, in terms of the -- in profits from business activities, on the IFRS terms, Power Systems, because of the negative nuclear power impact, it is negative. It 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 & Space. As you can see in the red line -- the red box, there's MRJ-related business losses indicated. Including this, we had JPY 31.4 billion. But excluding this, we had JPY 54 billion. 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 2018. I already talked about the Q1 results. And based on the results that we had for Q1, for the orders, revenue, profits, cash flow and the dividends, we have decided to maintain the same forecasts for all of these items as we had announced at the beginning of the year. And in terms of the fundamental business, the 6% and the 4%, the [ 7 ]% increase and the free cash flow was JPY 170 billion. So from orders, revenue, profit from business and profit attributable to the parent, we have JPY 410 billion (sic) [ JPY 4,100 billion ], JPY 420 billion (sic) [ JPY 4,200 billion ], JPY 250 billion and JPY 170 billion. And balance sheet is still heavy, and the 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.