November 10, 2022
JGC Holdings Corporation
Second Quarter Financial Results for FY2022 ending on March 31, 2023
Q&A from the Online Earnings Release Conference (held on November 10, 2022)
This content is based on information available on the date of the earnings release conference (November 10, 2022).
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Second quarter financial results for FY2022 ending on March 31, 2023
QuestionAnswer

The gross profit ratio was 12.0% in the first half of the fiscal year,

This can be attributed to the impact of the weak yen in the EPC business and marginhigher than the forecast of 9.2% for the year. What are the factors

improvement from successful risk management in some projects at the last stage ofbehind this?

construction or completion, among other factors.

Calculations indicate that the forecast for the gross profit ratio for theThere are three reasons for this. First, the USD/JPY exchange rate was 144.81 yen

second half is 8.2%, which would be lower than the ratio in the firstat the end of the second quarter, but our forecast is based on assumption of stronger

half. What factors are behind this? Can we safely assume that this isJapanese yen USDJPY140 for the second half of the fiscal year. Second, although

not because the Company is worried about deteriorating profitability

we could expect profitability to improve in the EPC business, we have not yet

on particular projects?

factored this into our forecasts for the second half. Third, we have been conservativein pricing in the impact that the steep rise in raw materials and fuel will have on thefunctional materials manufacturing business. We have not forecasted a lower grossprofit ratio for the second half because of projects whose profitability we areconcerned about.

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2.

Market environment

With so many inquiries from customers, what are the bottlenecks andThis is my personal view, but if we look at the LNG field, we find that equipment andconstraining factors at present that stand in the way of customers

material prices have not returned to the levels seen before the invasion of Ukraine,

placing orders for plant construction?

and while customers’ investments are increasing, this conflicts with some customers’
needs to quickly manufacture LNG. Moreover, orders are primarily being placed withthe main equipment suppliers and some equipment has long lead times, which I thinkis another constraint. However, projects regarding which the government is promoting
the export of LNG, as in the US, will likely quickly move to the FID stage. My senseis that there are some obstacles overall, but projects are making steady progress.

Is there a high probability that the Cameron LNG terminal expansion

That is what we expect.

plan and the Freeport LNG facility expansion project in the US will
begin between the second half of this fiscal year and the next fiscalyear?
Can you tell us about your policies for taking on orders for LNG

We have LNG plans underway around the world, and do not focus exclusively onplans in the US?

LNG projects in the US. Moreover, since the Group’s resources for carrying out theseprojects are limited, our basic policy is to be very selective in choosing which projects
to take on. It can be difficult to hire enough construction workers in the US, so having
a trustworthy partner who can reliably secure construction workers is essential. Once
we have a firm understanding of the current risks and local conditions, we make acautious decision on whether we can carry out multiple projects at the same time inthe US.

Given the increase in inquiries regarding various projects, what is theIn addition to the construction of a new operation center in India, we are increasing

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Group’s policy on expanding its capacity to implement projects?

staff by 100 at the engineering center in southeast Asia. Meanwhile, in Japan, we plan
to increase the number of contract employees who are skilled engineers by 100.
However, we think it is important not to expand capacity at the expense of quality.

Many other companies in this industry are struggling with rising

We will bid for future projects with the current sharp rise in material and equipment

costs due to the spike in material and equipment prices. How is JGC

prices factored into the bid. In the case of projects received early in this fiscal year,

managing these higher costs? Can you also tell me how you plan tothese have been unofficially announced, but we were able to persistently negotiate

address this in the second half?

with the client and receive the order with higher prices factored into the amount. Thesituation for ongoing projects differs depending on the contract terms with the client,
but if the contract leaves room for negotiation, we will tenaciously negotiate with theclient so that these higher prices are shared. We have already priced in some of theimpact of the steep jump in prices into our earnings forecasts for this fiscal year.

In Europe, the suppliers of natural gas are diversifying now that

It is difficult to determine at this point whether these issues will be resolved, but weRussia is out of the picture, but I hear that it is difficult to obtainbelieve that LNG will be used in the near term as a transition energy and that the needfinancing for LNG plans in terms of decarbonization and ESG. Dofor low carbon and decarbonization will rise, as with the combination of LNG plants

these problems seem to be heading toward a resolution?

with CCS, for example. However, the Group does not assume that LNG will remain
the main source of energy, and is working to expand fields with future growthpotential, such as hydrogen and ammonia fuel, as we outline in our long-term
management vision, 2040 Vision, and our medium-term management plan, BSP2025.

Can you please provide an update on developments for LNG

We are currently bidding for the Cameron LNG facility expansion plan and theprojects?

Freeport LNG train expansion project, and are bidding for a FLNG plan in Malaysia
as well. We have also received inquiries regarding a basic engineering plan (front-endengineering design, or FEED) for an LNG plan in Oceania.

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3.

Individual projects

It seems like raising profitability levels in the EPC business, which

In the hydrogen and ammonia fuel fields, we expect to carry out FS and pre-FEED

is identified as a growth area in the medium-term management plan,for several projects from the second half of this fiscal year through next fiscal year,

is an important theme. What progress has been made in the past six

and we are also working to implement SAF projects overseas. Our speed has notmonths to one year?

increased dramatically, but we are boosting personnel in these growth fields, evenas we remain active in our existing fields, and are making steady progress in theright direction.

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