May 11, 2023
JGC Holdings Corporation
Q&A from the Online Earnings Release Conference (held on May 11, 2023)
On Financial Results for FY2022 Ended March 31, 2023
This content is based on information available on the date of the online earnings release conference (May 11, 2023).
1. Orders received, market environment
Question

AnswerAlthough there are ample opportunities in the EPC market,
plant costs are said to be higher due to rising prices andother factors, and customers are said to have stricter
requirements. What is the JGC Group's stance on the orders
you pursue?

We believe it is important to assess the risks inherent in each project. ManyLNG projects can be found in the U.S., for example, where we also see many
plant construction projects outside the LNG sector. But here, there is atendency toward sharply higher labor costs and longer construction
periods. There are also LNG projects in the Middle East and elsewhere,
although we do not expect to secure all of the LNG projects reported.
Essentially, we are selective about the orders we pursue, and we consider
both the risks and how we will use our resources.
Moreover, we expect that EPC projects for fuel ammonia, hydrogen, andSAF will finally appear from the end of FY2023 through FY2024. These newareas represent future engines growth for the JGC Group, and we will be
securing internal resources for them as we work to establish this business.

Overseas, the order target in FY2023 is 620 billion yen overall,but how would you describe the scale of individual projects?

For our LNG projects in the Middle East, we expect individual projects to bein the range of 200–300 billion yen, and LNG projects elsewhere lie in arange of 100–200 billion yen.

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The domestic SAF demand outlook makes it likely that many
future SAF plant construction projects will involve EPC
services. How can the JGC Group be competitive in SAF
projects?

Japan's Ministry of Land, Infrastructure, Transport and Tourism estimatesthat domestic SAF demand will grow significantly, reaching approximately
1.71 million kiloliters by 2030, and steady progress in plans to build SAF
plants here that will use various feedstocks is being made by multiple
companies (mainly Japanese oil wholesalers), several of whom haveapproached the JGC Group. The fact that an array of feedstocks will be
used for SAF gives us a competitive advantage from our unmatchedrefining and chemical technologies. Moreover, refining and chemicaltechnologies and resources of both the JGC Group and Toyo Engineering
Corporation will be combined through an alliance agreement concluded inApril, providing a competitive edge in FEED and EPC services for domestic
SAF plants.

2. FY2023 earnings forecast and progress of medium-term business planQuestion

AnswerPlease tell us about the FY2023 earnings forecast sensitivity toforex rates.

As a reference estimate, each 1-yen change against the US dollar would
affect sales by 4 billion yen, gross profit by 600 million yen, and ordinary
profit by 1 billion yen.

Might we see improvement in the gross profit ratio of 8.5%
stated in the FY2023 earnings forecast, as the yearprogresses?

The gross profit ratio projected for FY2023 reflects an increase in fixed
costs, such as for improvement of employees’ compensation. Suppose
excluding this, the forecast would have been consistent with the initial
forecast for FY2022, at about 9%. This ratio may improve if we see gains in
profitability for ongoing projects, as happened the previous fiscal year,
because such gains were not factored in the forecast.

Projected SG&A expenses for FY2023 are unchanged fromIn FY2022 results, the provision of allowance for doubtful accounts was2/4

FY2022 results, despite higher fixed costs and other factors.
Why is this?

included in SG&A expenses. Although the provision was a one-time charge
not reflected in the SG&A expense forecast for FY2023, the forecast is
nearly the same due to the expected increase in fixed costs. It is realistic toexpect SG&A expenses to increase.

In contrast to FY2023 operating income projected as 38
billion yen on page 12 of the Business Overview, you havementioned that the underlying value of operating income
may be 45 billion yen. What is the basis of this difference of 7
billion yen?

This reflects roughly 7 billion yen of downward pressure, representing thetotal of both the impact of increased fixed costs (such as increased
personnel expenses from improvement of employee compensation andincreased operating expenses associated with DX, etc.) on current project
profitability and the impact of declining market conditions on functional
materials manufacturing segment. Both impacts are temporary. The
increase in fixed costs such as personnel expenses will be included in future
project estimates, and we are also likely to see a recovery in the functional
materials manufacturing market by 2024. We therefore believe that thedownward pressure on projected operating income in FY2023 would be
gradually eliminated as we approach 2025. For this reason, an underlying
value of 45 billion yen was mentioned for operating income forecast. Thisvalue suggests consistency with the 60 billion yen in operating incometargeted by the final year (FY2025) of the medium-term business plan.

Based on the FY2023 earnings forecast, what is your view
regarding the 800 billion yen sales target to be met by
FY2025 under the medium-term business plan, as mentioned
on page 12 of the Business Overview?

In total engineering, we may see higher sales, considering the favorable
market environment recently, orders received up to the previous fiscal year,
and order targets for FY2023. Although functional materials manufacturing
sales will level off in FY2023 on lower demand for products used insemiconductor manufacturing equipment, there will be no change in themedium- to long-term growth trend. These conditions suggest a greater
possibility of surpassing the sales target for FY2025.

With ample cash and deposits on the balance sheet, what is
the likelihood of future share repurchases?

Some significant factors for last year's increase in cash and deposits weretemporary. Although progress was made in large projects as acceleratingprocurement work, there are significant growth of accrued payables to

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manufacturers and others. Moreover, funds must be applied for several
tens of billions of yen in strategic investment that has already been decided
and is awaiting the optimal timing for investment. The Group may once
again consider share buyback if additional payout becomes possible basedon factors such as the medium- to long-term cash flow outlook, the market
environment, and the outlook for project orders.

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