Ebara : Three Months Ended March 31, 2024 (Script)

Event Summary

[Company Name]	EBARA CORPORATION
[Company ID]	6361
[Event Language]	Japanese
[Event Type]	Earnings Conference
[Event Name]	Results Presentation for Three Months Ended March 31, 2024
[Fiscal Period]	FY2024 1Q
[Date]	May 14, 2024
[Time]	16:00 - 16:51
	(Total: 51 minutes, Presentation: 25 minutes, Q&A: 26 minutes)
[Venue]	Webcast
[Number of Speakers]	2

Shugo Hosoda	Executive Officer, CFO
Akihiro Osaki	Division Executive,
	Group Public Relations and Finance
	Division

Presentation

Osaki: Thank you for waiting and for taking time out of your busy schedules to join us today for the financial results briefing of EBARA Corporation for the first quarter of the fiscal year ending December 2024. Now it is time for us to start the meeting. At 15:00 today, we disclosed the documents related to the financial results on the TSE platform as well as on our website. We hope that you will join us while following along with the documents.

I would like to introduce our speaker for today.

This is Shugo Hosoda, Executive Officer and CFO.

Hosoda: I am Hosoda. Thank you.

Osaki: I, Osaki, Division Executive of Group Public Relations and Finance Division, will act as moderator.

As for today's schedule, Hosoda will provide an overview of our financial results, and then we will take questions from the participants. The meeting is scheduled to end at 17:00.

Now, Hosoda will begin the explanation.

Hosoda: Hello, everyone. This is Hosoda.

First, I would like to explain the key points of the first quarter financial results.

Overall, we view the results as representative of relatively smooth progress. Orders were almost the same level as in the same period of the previous year, when 1Q recorded a record high, although there was a slight decrease. Looking at the breakdown, we can see signs of a recovery trend in the Precision Machinery Segment compared to the same period of the previous year.

However, compared with the same period of the previous year, orders in the Environmental Solutions and Energy Segments decreased, but this was due to the timing of the booking of large orders, which were recorded in 1Q last year, but not in 1Q of this year. In total, orders are almost at the same level as the previous year.

With respect to revenue, operating profit, and operating profit ratio, we have achieved record performance for 1Q, supported by foreign exchange gains.

We believe that the Company is off to a good start and have slightly revised our forecast for the landing point of 1H of the fiscal year considering the 1Q results. Since we are mostly proceeding according to plan, we have not made changes to our initial forecast for the full year.

As for other topics, as already disclosed, we are planning to conduct a 5-for-1 stock split as of July 1. We hope to make our stock more accessible and expand our investor base.

Now I would like to go into the details.

Please see page five for the consolidated 1Q results.

Orders, as I mentioned earlier were basically at the same level as the previous year, however fell slightly by JPY6.3 billion to JPY191.6 billion, a minus of 3.2%. Revenue increased JPY9.7 billion from the same period last year to JPY193.8 billion. Operating profit increased by JPY4 billion to JPY19.2 billion and profit attributable to owners of the parent company increased by JPY6.5 billion to JPY14.6 billion.

As a result, EPS was JPY159.20, a significant improvement from the same period last year. The average exchange rate for the period from January to March was a year-on-year depreciation of the yen against each major currency, but we estimate that the overall impact of exchange rate fluctuations on operating profit for the quarter was about JPY900 million compared to the same period last year.

Moving on to page six. This is a summary of financial results by segment.

As I mentioned earlier, orders received by the Precision Machinery Segment increased significantly from the same period of the previous year, as semiconductor demand has bottomed out and is proceeding toward recovery. Orders in the Building Service & Industrial Segment also increased due to strong domestic demand. Orders in the Infrastructure Segment also increased year-on-year due to the receipt of several large orders in 1Q of this fiscal year.

There has been no major change in the market environment for Environmental Solutions and Energy Segments, however the timing of orders for large projects has had an impact, resulting in a year-on- year decline in orders.

Revenue for Infrastructure and Precision Machinery Segments decreased slightly due to some customer postponements, but in the Energy, Building Service & Industrial, and Environmental Solutions Segments revenue remained strong, resulting in an overall increase of JPY9.7 billion from the same period of the previous year.

Operating profit increased by JPY4 billion year-on-year, driven by the Energy, Environmental Solutions, and Precision Machinery Segments results.

Page seven shows a breakdown of changes in operating profit from the same period of the previous year.

The JPY4 billion increase in operating profit is due to revenue increasing by JPY0.7 billion in the Energy, Building Service & Industrial, and Environmental Solutions Segments.

This is in addition to increases in profitability, which account for a large portion of the increase. Profitability improved by JPY5.5 billion, mainly due to an improved project mix in the Precision Machinery Segment and a one-time gain from the sale of land in the Energy Segment.

On the other hand, fixed costs increased by JPY2.3 billion due to an increase in labor costs from base salary increases and other factors. Finally, there was a JPY0.9 billion gain due to foreign exchange and a JPY0.8 billion loss on retirement of a building at the Fujisawa District resulting in an overall operating profit of JPY19.2 billion for 1Q.

This page shows the composition of revenue by region.

The dark blue portion of the pie chart on the right shows revenue generated overseas. 1Q resulted in 59% overseas and 41% domestic. Roughly the same as the usual ratio of 6 to 4.

The bar graph on the left compares 1Q of the current term in the upper row to 1Q of the previous term in the lower row. As you can see, both domestic and overseas sales increased compared to the previous term, with domestic sales gaining slightly more than overseas. However, the overseas gains can be mostly attributed to the effect of foreign exchange rates.

This means that overseas sales are essentially at the same level as FY2023 1Q. Looking at the overseas market by region, the market with the largest growth compared to the same period last year was the Chinese market.

On the other hand, the largest declines were in Asia, excluding Japan and China. Our analysis indicates that this change was largely due to the revenue trends in the Precision Machinery Segment. While revenue in Europe declined some, the Energy Segment performed well in the Middle East growing significantly from the previous year.

Now, we will explain the performance of each segment.

In the Building Service & Industrial segment, orders, revenue, and operating profit all exceeded those of the previous year, with both revenue and operating profit increasing.

In terms of the market environment, GDP growth is slowing in China and South America, while emerging Asian countries and the Middle East are on a recovery trend. Although the real estate market remains sluggish in China, the demand for energy-efficient products in the industrial market

remains strong and was the main reason behind the increase in orders compared to the same period last year.

In the Japanese market there was a rush in orders before price revisions and both orders and revenue increased in 1Q.

Although there were increased fixed costs, such as in labor, increased revenue, and increased S&S ratio from the same period as last year, as shown in the lower left-hand corner, led to increased profitability.

Next is the Energy Segment.

Orders are down compared to the same period last year, but both revenue and operating profit are up. Regarding the market environment, in the oil and gas market, as in the previous year, there has been some activity in petrochemical projects, mainly in the Middle East. On the other hand, the LNG market, which was very active in the North American market last year, continues to be stable overall. Last year we were able to win several large LNG projects, and compared to that time, the market seems to have settled down a bit, which you can see through the 1Q Energy Segment orders.

Orders decreased from the same period last year due to the difference in large projects for LNG, although we received several large projects in the Middle East and China as planned.

Revenue increased due to strong orders for products last year, and S&S orders also increased. However, as seen in the graph on the lower left, the service and support ratio decreased. By region, revenue is increasing in the Middle East and Asia.

Operating profit increased due to increased revenue. Profitability is slightly positive, but as I mentioned earlier, this includes a one-time gain from the sale of land in North America, so excluding this, profitability was slightly lower than in the same period last year.

The Energy Segment had a slight decline in profitability for 1Q compared to last year due to increased product revenue compared to more high-margin service and support.