Mitsubishi Heavy Industries, Ltd. (OTCPK:MHVYF) Q1 2022 Earnings Conference Call August 5, 2022 2:15 AM ET
Company Participants
Hisato Kozawa – Chief Financial Officer
Conference Call Participants
Hisato Kozawa
Let me go over the document. And the next page is showing a table of contents. First, let me go over the highlights for the financial results. Please turn to Slide 4. This is showing major financial results. And we also have the summary of such information on Slide 5. Let me touch on the key points. The order intake revenue increased year-on-year. In particular, the growth of order intake was quite huge.
We are making about 25% progress, compared to the annual forecast, which is quite high level considering the past years. Business profit actually a decline year-on-year, due to the downsize in expenses, which I will touch on later on Slide 10. On the other hand, we saw foreign exchange gain along with yen depreciation to increase net income by 52% year-on-year. Free cash flow is almost staying flat to the previous year.
Slide 6. It’s showing the Q1 order intake trend for the products, which saw year-on-year increases during this Q1. GTCC received orders for five large gas turbines for Hong Kong Electric and others. Metals Machinery continues to see a strong order intake at ¥138.9 billion, which is a record high [fourth quarter] [ph]. Logistics Systems and HVAC market demands are quite solid and the reductions has been a drag for this business recently. Slide and beyond are showing more details on the results.
Let me skip Slide 8 as this is a repetitive information. On Slide 9, it shows the balance sheet and cash flow. Total assets went up by ¥248.5 billion the end of 2021 to book [¥5,364.8 billion] [ph]. The major elements were roughly about ¥130 billion, FX conversion impact on foreign currency denominated assets due to yen depreciation, and a little over ¥60 billion, due to cash – on cash and cash equivalents and inventory increases and they are moving within a normal range. Investing cash flow improved, compared to the previous year and contributed by sales of land and securities.
On Slide 10, we are seeing the changes on business profit, compared to the previous year. The far left bar is showing the business profit for Q1 of FY 2021, which was ¥21.4 billion. The logistics thermal and drive systems and air engines had a positive impact on the revenue by ¥13 billion, but there was a decreased profit of ¥11 billion, due to the material and logistics, as well as supply chain disruption.
And let me also put some color on the decreased profitability in thermal power. There are two elements. First, it is a reaction from high margin project booked in Q1 of last year. Second, is due to – business operation expenses for the European business in coal fired thermal power plants. As you all know, we are moving towards a carbon neutrality. The coal fired thermal power market is shrinking globally.
So, we have been consolidating operations inside Japan and we have been integrating the Mitsubishi Power into MHI transforming the business to optimize the resources and transition energies. And this rebuilding European operation is part of this effort. And we also have other changes that you see on the Slide and do have the business profit to be ¥14.9 billion.
Slide 11, is showing the order intake revenue and business profit by segment. And let me give you more details by different segment. Slide 12 shows the status of the Energy segment. Both order intake and revenue made a strong start. The business profit started in negative, however, as I mentioned earlier, this is mainly due to the downsizing expense of the European offices. And when we look at the engines for aircraft, the profit is on increasing the trend and we are expecting recovery from the second quarter onward.
Slide 13 is for Plants and Infrastructure Systems segment. The profit declined year-on-year. However, this is mainly due to FX impact. Basically our business is help us to improve the profit when yen is depreciated. However, for this quarter, due to the technical factor of the accounting, we had seen some attentive profit drop. But when the yen is – this is due to the yen being weaker, foreign currency denominated costs increased and negatively impacted the percentage of completion calculation. And as a result, the profit dropped. But when exchange rate stabilizes or yen is appreciated, it will come back.
Slide 14 talks about the LT&D. Segment as a whole, both revenue and order intake was strong, but the business profit will – are week. And as of the first quarter, the impact of price increase was far less than the impact of the cost increase, but we believe that we can see some tangible result of the price increase from the latter half of this year. Of course, semiconductor shortage needs to be improved, but we believe we can achieve annual forecast for the profit.
Slide 15 shows Aircraft, Defense & Space. Aerostructures Tier 1 business is in difficult situation where the shipment unit for Boeing does not recover, but we maintain the fixed cost low and thanks to the yen depreciation, the profit increased year-on-year. So, we are on a good status in terms of achieving the annual forecast.
Slide 16 to Slide 18 talks about the forecast for FY 2022. There are no change since our announcement back in May, so I would like to skip the explanation. This is all from myself. But today, I would like to talk about the issuance of the transition bond whose release was made today.
Last year, two years ago, in two years consecutively, we issued the green bond. This year, in March, we were selected as a model case for the [Mitsubishi] [ph] Climate Transition Finance Model, and as a product ESG bond issuance, we decided to issue transition bond. We are going to use the fund to develop hydrogen manufacturing technology, as well as the hydrogen fired gas turbines and we are going to develop energy transition related technology, as well as the business. And by using the fund to be raised, we would like to promote the mission Net Zero, trying to achieve the Carbon Neutrality.
With this, I would like to conclude my presentation. Thank you very much.
Question-and-Answer Session
End of Q&A
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