Chiyoda Corporation

Conference Transcript: Financial Results for FY2017(Announced on May 11, 2018)

Good afternoon. My name is Masaji Santo, President and CEO of Chiyoda
Corporation. Thank you very much for your coverage of Chiyoda
Corporation and your attendance at the meeting today.
Let me start my presentation by briefing you on our financial results forthe fiscal year ended March 2018 and our results forecasts for the fiscal
year ending March 2019.
First, for the financial results for the fiscal year ended March 2018,
please take a look at page 2. We have listed the results highlights on thispage.
The first point is that net income reached 6.4 billion yen and that wewere able to move to profitability from a loss of 41.1 billion yen, as thenext slide on page 3 shows.
As a result, the dividend per share has been increased to 7.5 yen,equivalent to a payout ratio of 30% and an increase of 1.5 yen from theprevious fiscal year.
Going back to page 2, the second point of the results highlights is thatnew orders grew steadily in the environmental engineering business.
While new orders of the Company totaled 301.2 billion yen, new orders inthe environmental engineering field came to 122.7 billion yen, making up
41% of all new orders and growing 26% from the previous fiscal year.
The third point is that the reduction of SG&A expenses made progress
due to the promotion of structural reforms. SG&A expenses declined
about 1.6 billion yen, or 7%, from the previous fiscal year, mainly due tothe reductions at Group companies in Japan and overseas.
The fourth point is that we posted an incremental cost of about 30 billion

yen in comparison with the initial plan because of projects in the UnitedStates, as I explained when we announced the financial results for thesecond quarter on November 10, 2017. This resulted in an operating lossof 12.3 billion yen and an ordinary loss of 10.1 billion yen.
Next, please look at new orders on page 4.
Total new orders stood at 301.2 billion yen, falling below the full-year
forecast of 350.0 billion yen. However, looking at new orders by region on
the left of the slide, new orders in Japan were 151.7 billion yen, higher
than the forecast.
Looking at new orders by field on the right of the slide, new orders in theenvironmental engineering field, which consists of pharmaceutical,biochemistry and chemical as well as environment, new energy andinfrastructure, reached 122.7 billion yen, making up about 41% of total
new orders and showing that orders are growing steadily. This suggeststhat our efforts are bearing fruit in this field, which we set as a priority
area in the medium-term management plan formulated in August 2017.
Now, please take a look at the order backlog on page 5.
The order backlog at the end of March 2018 was 653.5 billion yen,mainly reflecting progress in uncompleted construction contracts, but webelieve that the order backlog will turn up going forward, given that large
orders can be expected in the fiscal year ending March 2019 associatedwith the recovery of market conditions for LNG, among other factors.
Next, let’s examine the statement of income on page 6.
First, revenues, or net sales of completed construction contracts, were510.9 billion yen, which was almost the same as the full-year forecast.
As you can see in the details on page 7, looking at revenues by region on
the left, total overseas revenues declined about 100 billion yen from theprevious fiscal year, mainly due to progress in large ongoing projects, butorders were growing steadily in Japan. Accordingly, total domestic
revenues also increased from the previous fiscal year.
Let’s go back to page 6.

SG&A expenses declined about 1.6 billion yen, or 7%, from the previous
fiscal year mainly at the Group companies in Japan and overseas due toprogress in structural reform, as I have already explained.
In terms of operating income and ordinary income, we have posted an
operating loss of 12.3 billion yen and an ordinary loss of 10.1 billion yen.
The majority of these losses stem from additional costs of about 30
billion yen recognized at projects in the U.S., as previously announced in
the Q2 results.
Net income amounted to 6.4 billion yen, higher than the full-year
forecast of 5.0 billion yen, mainly due to the posting of extraordinary
income of 15 billion yen, reflecting the reversal of the provision for lossfor EMAS Chiyoda Subsea announced at the time of the release of thefinancial results for the second quarter and sales of some shares ofaffiliates. In addition there was a refund of federal income tax at the U.S.
subsidiary, which is the contracting party of the projects in the UnitedStates, associated with the increase in costs for the projects.
Let’s go to page 8 and take a look at the balance sheet.
Cash and deposits declined 39.3 billion yen from the end of the previous
fiscal year, to 104.0 billion yen, mainly due to the payment to vendors /subcontractors in on-going projects and because of a gap in the timing ofreceiving funds.
Provision for loss on business of subsidiaries and associates decreased
by 22.9 billion yen from the end of the previous fiscal year, due to thereversal of the provision for loss for EMAS Chiyoda Subsea.
Finally, I will explain our results forecasts for the fiscal year ending
March 2019. Please take a look at page 9.
First, with respect to new orders, we forecast 800 billion yen mainly
because we have begun seeing movements in large projects associatedwith the recovery of market conditions for LNG, among other factors.
In terms of the breakdown for overseas and domestic, we forecast 600
billion yen for the former and 200 billion yen for the latter.

For more details, I will provide an explanation in the report on thecurrent management status.
As for revenues, we forecast 400 billion yen, given that progress in large
ongoing LNG projects has passed the peak, and we forecast 30 billion
yen for gross profit on completed construction contracts.
We plan to reduce SG&A expenses to 18.5 billion yen by further
promoting structural reform, and as a result, we forecast operating
income of 11.5 billion yen, ordinary income of 12.5 billion yen and net
income of 6.5 billion yen.
In terms of dividends, we forecast 7.5 yen for the annual dividend pershare.
That concludes my presentation of our financial results for the fiscal year
ended March 2018 and results forecasts for the fiscal year ending March2019.
Now let’s move to “Business Overview” part.
Firstly, please refer to Page 2 showing Chiyoda’s business environment.
This page is divided into three sectors: Energy Business, the GlobalEnvironment Business and Digital Technology Innovation.
The key points are:
Energy Business: An increase in natural gas demand mainly inAsia and continued development in shale petroleum/petrochemical
projects in the U.S.
Global Environmental Engineering Business: Increased investment
in renewable energy and electricity storage aiming for a decarbonizing
society and the development of energy storage technologies.
Digital Technology Innovation: Rapid evolution in the application ofAI / Big data / IoT with multiple options.

Moving on, I will explain Chiyoda’s business development strategy
according to these external influences.
Page 3 shows that business development expected for the energy sector
this term can be divided into two categories: an increase in the award oflarge-scale EPC projects and the establishment of an energy value chain.
Large-scale EPC, Refinery, Chemical, and Metal projects, as shown in thetop right corner of the slide, will be explained later. However, the awardof a large-scale petrochemical project overseas is a real prospect for us.
As indicated in the top left hand corner of the slide, a number of projects
have commenced in accordance with a recent increase in LNG demand.
Chiyoda expects FID of large-scale LNG projects in the U.S. or Africa thisterm, and projects in Papua New Guinea, Qatar and Russia, where wehave previously successfully delivered projects in the past, have started
moving forward. Our current operations, including FEED, continue andwill hopefully lead to the award of EPC from next term.
The lower part of the slide shows the establishment of an energy value
chain business. Gas-to-Power projects have commenced as asset holding
business in Southeast Asia, especially in the downstream sector. This
will not immediately be reflected in this term’s figures, but we will
actively work on these projects as one of stable sources of revenue in thefuture.
Please refer to Page 4.
This page concerns the global environmental engineering business and isdivided into the three categories shown from left to right: New Energy,Environment / Energy Saving / New Materials and Life Science.
New Energy and Life Science are regarded as future growth drivers. In
New Energy, we are aiming for the award of large-scale electricity storage
facilities, biomass electric power generation as well as conventional mega
solar projects this term. In electricity storage, we are aiming for energy
management business in addition to EPC and are preparing for entry
into offshore wind power projects.
In Life Science, we will increase our efforts in middle-molecule, polymers,
regenerative medical care, regenerative medicine and biotechnology, aswell as conventional low molecular medicine production facilities. We
have recently invested in the development of peptide-based medicine, atype of middle-molecule medicine. Other than EPC, we wish to proceedwith these projects, if only in small measures at the start.
Please refer to Page 5.
This page describes digital technology innovation and is divided into twocategories, companywide digitization on the left and the development of
new business models on the right. Alliances and cooperation withpartners will be key in both digital categories. We will expand ourpartnering in accordance with this slide.
Please refer to Page 6 for forecasts of consolidated orders this term.
Our forecast for the total amount of orders awarded is 800 billion yen, of
which 150 billion yen is from the global environmental engineeringbusiness and 650 billion JPY is from energy, including 400 billion yenfrom LNG / Gas and 250 billion yen from Refinery, Chemical and Metal.
The 400 billion yen from LNG / Gas is based on the forecast that we areawarded a large scale project in either the U.S. or Mozambique asindicated earlier. If two or more projects are awarded, this amount will
increase significantly.
In Refinery, Chemical and Metal, we expect domestic projects and theaward of a large-scale petrochemical project overseas as previously
stated. The figure of 250 billion yen will be exceeded if copper smelter
project in Indonesia is included, but this project is positioned as back-up
this term.
More orders have been received in the environment business, mainly inthe new energy sector, and the 150 billion yen quoted is promisingconsidering multiple projects are at an advanced stage.
Based on the above, we expect that the 800 billion yen forecast will beachievable this term.
Earnings portfolio transition is referenced on Page 6. In the Mid-termManagement Plan released last August, a target was set to increase theratio of new orders awarded in environment business from 15%, theaverage set in the previous Mid-term Management Plan, to 30% in
FY2020. This term the ratio is 19%, indicating the steady growth ofenvironmental business in accordance with the current Mid-termManagement Plan.
Finally, business topics are shown from Page 7 onwards.
That concludes our presentation.
Thank you very much.
#####Any projections included in these materials are based solely on information available at the time thispresentation was prepared. It is possible that actual results may vary significantly from the projections
due to a number of risk factors such as economic conditions. The results projected here should not beconstrued in any way as being guaranteed by the Company. Investor are recommended not to depend
solely on these projections for making investment decisions.