Kawasaki Heavy Industries, Ltd. (KWHIY) Q3 2023 Earnings Name Transcript

Kawasaki Heavy Industries, Ltd. (OTCPK:KWHIY) Q3 2023 Outcomes Convention Name February 8, 2024 11:30 PM ET

Firm Contributors

Katsuya Yamamoto – EVP, Government Officer & IR

Katsuya Yamamoto

My title is Yamamoto. Thanks in your participation. Now I want to current monetary highlights. As introduced as we speak, at 11:30 a.m. on the Tokyo Inventory Alternate and on the corporate’s web site. Within the third quarter monetary yr 2023, the corporate booked a 9-month cumulative enterprise revenue of JPY 700 million, a big enchancment from the earlier quarter when the corporate posted a loss associated to operational issues with the PW1100G-JM engine.

For the total yr, enterprise revenue is anticipated to succeed in JPY 43 billion, a rise of JPY 3 billion from the earlier introduced forecast on account of improved profitability in Aerospace Methods, Power Options & Marine Engineering in addition to a weaker yen regardless of worsening efficiency in Precision Equipment & Robotic and Powersports & Engine.

Revenue earlier than taxes and web earnings are unchanged from the earlier forecast as a result of anticipated loss on valuation of hedges by ahead change contracts. Dividends will stay unchanged. The above is an outline. Please confer with Web page 3 for an in depth clarification of the outcomes.

Web page 3. As soon as once more, for the third quarter monetary yr 2023, orders obtained had been JPY 1,290.1 billion. Income was JPY 1,229 billion. Enterprise revenue was JPY 0.7 billion. Loss earlier than earnings taxes was JPY 17.9 billion and loss attributable to house owners of the mum or dad firm was JPY 13.4 billion. Though every enterprise has its personal strengths and weaknesses. The general enterprise has usually remained in keeping with expectations for the reason that earlier announcement.

As you’ll be able to see, the gross sales weighted common change fee for the third quarter was roughly JPY 6 decrease than that of the identical interval final yr. And the revenue and loss influence, international forex quantity was roughly $1.24 billion.

Web page 4. The chart beneath exhibits the breakdown of orders, income and enterprise revenue for every phase. As proven in 1, Power Answer & Marine Engineering reported a rise of JPY 7.3 billion year-on-year on account of important contributions from the ship and offshore construction and Power Marine equipment companies.

However, as talked about in 2 above, the corporate reported a big year-on-year lower in revenue in Powersports & Engine on account of a rise in gross sales promotion bills as reserving estimated bills associated to the recall of off-road for wheelers within the U.S. within the third quarter. And in Precision Equipment & Robotic primarily on account of a stagnant stock and a lower in demand within the Chinese language market.

Because of the above, total income elevated by JPY 32.7 billion, from the identical interval final yr to JPY 1,229 billion, whereas enterprise revenue (loss) decreased by JPY 80.1 billion to JPY 0.7 billion.

Web page 5, see the chart for particulars. As famous in 1, the loss on the PW1100G engine was recorded as a lower in income from gross sales leading to a deterioration of the price of income ratio. The principle components for 3 had been price reductions on the ship three way partnership in China and improved profitability on account of decrease metal costs and a weaker yuan.

Web page 6. Subsequent, I’ll clarify the stage revenue beneath the enterprise revenue. As proven in 4, international change losses of JPY 10.8 billion had been recorded within the third quarter. This was on account of international change losses ensuing from the loss on valuation of hedges of international change contracts. Because of this, web loss attributable to house owners of the mum or dad amounted to JPY 13.4 billion, down JPY 65.9 billion from the identical interval final yr.

Web page 7. This part explains the components that contribute to the rise or lower in enterprise revenue and loss in comparison with the identical interval final yr. The depreciation of the yen in opposition to the U.S. greenback resulted in a JPY 21.2 billion enchancment. However, the change within the gross sales composition resulted in a JPY 25.6 billion lower in revenue primarily on account of a rise in gross sales promotion bills and estimated recall associated bills within the Powersports & Engine enterprise in addition to a decline in manufacturing facility operations within the Precision Equipment & Robotic enterprise, primarily on account of a drop in demand within the Chinese language market.

Moreover, some bonus reserves, which had been beforehand recorded in a lump sum on the finish of the fiscal yr will probably be leveled from the primary quarter of this fiscal yr and this transformation in accounting remedy has had the impact of lowering income by roughly JPY 5 billion year-on-year.

As well as, a loss was recorded for the PW1100G engine, leading to a enterprise revenue of JPY 0.7 billion for the third quarter, down JPY 80.1 billion, from the identical interval final yr. Please confer with Web page 8 for an in depth breakdown by phase.

Web page 9. As indicated in 2, relating to the components behind the change in belongings within the third quarter, inventories elevated in Aerospace Methods and Powersports & Engine in keeping with gross sales enlargement. However, as indicated in 3, deferred tax belongings elevated because of the loss recorded for the PW1100G engine challenge.

Web page 10. With regard to the components that brought on adjustments in liabilities and web belongings, as indicated in 4, interest-bearing debt has elevated from the tip of the earlier interval, however it is a regular enterprise cycle. The online D/E ratio was 126%, barely worse than in the identical interval final yr, however this was on account of a lower in capital on account of losses associated to the PW1100G challenge.

Along with steadily enhancing profitability, we are going to proceed our efforts to enhance asset effectivity by selling the gathering of accounts receivable and lowering inventories with the intention of returning to our goal degree of 70% to 80% by the tip of the fiscal yr.

Web page 11. As proven in 1, working money stream improved by JPY 15.1 billion from the identical interval final yr primarily on account of progress in assortment of receivables in Powersports & Engine within the third quarter of the present fiscal yr. Whereas money outflow within the third quarter of the earlier fiscal yr was on account of a rise in advances in Aerospace Methods.

By way of money stream from investing actions, as proven in 2, expenditures for the acquisition of fastened belongings elevated primarily on account of investments in reference to the startup of a plant in Mexico within the Powersports & Engine enterprise, leading to a JPY 27.8 billion outflow improve in total money stream from investing actions. Because of this, free money stream worsened by JPY 12.6 billion year-on-year.

Web page 12. Now we have posted the money stream traits for the previous 10 years in your reference. Web page 13. For the fiscal 2023 earnings outlook, as talked about earlier, we count on a lower in income within the Precision Equipment & Robotic and Powersports & Engine companies from the earlier forecast. Nevertheless, on account of improved profitability within the Aerospace and Power Answer & Marine Engineering companies and the depreciation of the yen, we count on enterprise revenue of JPY 43 billion, a rise of JPY 3 billion from the earlier forecast.

Revenue earlier than taxes and web earnings are unchanged from the earlier forecast at JPY 21 billion and JPY 12 billion, respectively, as a result of influence of valuation losses on the hedges related to ahead change contracts. We forecast greater gross sales and income for the three months of the fourth quarter in comparison with the third quarter when gross sales and income stay sturdy. And at this level, we imagine there’s a excessive chance that we are going to obtain our targets.

To your reference, please confer with the graph on Web page 38, which exhibits the components behind the JPY 35 billion change in enterprise revenue from the preliminary forecast of JPY 78 billion to the JPY 43 billion introduced this time.

Web page 14. The breakdown by phase is proven within the chart. Particulars are defined on the web page for every phase. Web page 15. The third quarter outcomes for monetary yr 2023 are proven on the slide. Orders for the total yr are anticipated to be JPY 590 billion, a rise of JPY 30 billion from the earlier forecast, primarily on account of a rise in orders from the Ministry of Protection.

Enterprise revenue was revised upward to a lack of JPY 17 billion, an enchancment of JPY 7 billion from the earlier forecast on account of improved profitability of Aero Engines and yen being weaker than anticipated within the third quarter.

Web page 16. Please confer with this web page for the outcomes of orders and income. The variety of plane for Boeing and the variety of engines offered for every of the airframe and engine enterprise. Web page 17. This web page exhibits quarterly gross sales and revenue traits.

Web page 18. This web page describes our understanding of the enterprise surroundings and order traits within the phase are key measures to attain our forecast and particular initiatives. Relating to the enterprise surroundings, we perceive that the PW1100G engine program is progressing as deliberate. As well as, we’ve got listed precedence measures and particular areas of emphasis for strengthening actions associated to the Protection enterprise in your reference.

Web page 19. As proven within the slide for the third quarter outcomes for monetary yr 2023, orders obtained had been down considerably from the identical interval final yr, however this was a response to the big orders obtained for the New York subway within the U.S. in the identical interval final yr. Income elevated by JPY 43.4 billion year-on-year on account of a rise within the supply of R211 vehicles for the U.S. market. Income additionally elevated by JPY 1.8 billion year-on-year primarily on account of a rise in income regardless of the influence of decrease home operations. There isn’t a change within the forecast for fiscal yr 2023 from the earlier announcement.

Web page 20. Please confer with this web page for the respective orders and income within the home, Asian and North American markets. Web page 21. This web page exhibits quarterly income and revenue traits in your reference. Web page 22. There was no change within the enterprise surroundings and precedence measures of the Rolling Inventory enterprise for the reason that earlier announcement. Web page 23. The third quarter outcomes for monetary yr 2023 are proven on the slide.

As for orders obtained, though there was a rise in orders for naval ship gear for the Ministry of Protection, orders decreased as a result of absence of orders for a waste remedy facility and LPG ammonia carriers obtained in the identical interval of the earlier fiscal yr. However, income rose as a result of power enterprise and a rise within the building quantity of LPG ammonia carriers, and income rose on account of a rise in revenue of fairness methodology associates along with the rise in income.

The forecast for orders obtained has been raised by JPY 20 billion from the earlier announcement, primarily on account of a rise in orders for waste remedy amenities for the home market and the forecast for income has additionally been raised by JPY 10 billion based mostly on progress in tasks.

By way of revenue, we raised the earlier forecast by JPY 4 billion on account of improved profitability of the Power enterprise along with improved fairness methodology features within the shipbuilding enterprise in China.

Web page 24. Please confer with this web page for a breakdown of orders, revenues and fairness methodology features and losses for the Power, Plant & Marine Equipment enterprise and ship and offshore companies. Web page 25. This web page exhibits quarterly income and revenue traits in your reference.

Web page 26. This part describes the enterprise surroundings and order traits on this phase. There aren’t any main adjustments within the enterprise surroundings or order traits. As for precedence measures, we are going to proceed to deal with offering services that contribute to the conclusion of a low-carbon and decarbonized society this fiscal yr. As famous within the case examine on the slide, we delivered a hybrid propulsion system for a bulk provider in December. That is the primary vessel of this kind produced anyplace on the earth.

As well as, we’re steadily advancing efforts to understand a hydrogen society, together with acquiring fundamental design approval from NK for the conclusion of hydrogen-fueled vessels. Web page 27. The third quarter outcomes for monetary yr 2023 are proven on the slide. Orders and income decreased from the identical interval of the earlier yr, primarily on account of a lower in orders for hydraulic gear for the Chinese language building gear market and industrial robots basically. Enterprise revenue additionally declined on account of decrease income and decrease capability utilization.

The forecast for each orders and income has been lowered by JPY 10 billion from the earlier announcement as a result of continued sluggish market and the forecast for enterprise revenue has additionally been lowered by JPY 4 billion from the earlier announcement as a result of lower in income.

Web page 28. This web page exhibits orders, income and fairness methodology features or losses of the Precision Equipment & Robotic phase. Please additionally confer with the next chart for a breakdown of hydraulic gear income to the Chinese language market and robotic income by area.

Web page 29. This web page exhibits quarterly income and revenue traits in your reference. Web page 30. This web page describes the enterprise surroundings, order traits, precedence measures and particular initiatives on this enterprise phase. No main adjustments have been made to the content material for the reason that final assembly.

Web page 31. Third quarter outcomes for monetary yr 2023 are proven on the slide in contrast with the identical interval of the earlier yr income of bikes for Europe and 4-wheelers for North America elevated, however income of bikes for Southeast Asia and common function engines for the U.S. decreased.

Along with the lower in income, enterprise revenue decreased on account of a rise in gross sales, promotion bills and stuck prices in addition to the recording of estimated recall-related bills associated to 4-wheelers for the U.S. market within the third quarter. The forecast for income stays unchanged however enterprise revenue has been revised down JPY 3 billion from the earlier forecast to JPY 47 billion on account of recall-related bills and different components.

Web page 32. This web page exhibits income of bikes for developed international locations, bikes for rising markets, 4-wheelers and PWC and general-purpose gasoline engines. Please additionally confer with the desk beneath for info on motorbike gross sales by nation.

Web page 33. This web page exhibits quarterly income and revenue traits in your reference. Revenue margin for the three months of the third quarter was 6.5%, a deterioration from the earlier quarter. Nevertheless, it must be famous that the revenue margin would have been above 10% if recall-related bills had been excluded.

Web page 34. Now we have included a brand new description of the present state of affairs within the U.S. 4-wheeler market with regard to the enterprise surroundings and precedence measures in your reference. There aren’t any main adjustments in different objects from the earlier report.

Web page 35. Relating to shareholder returns, the dividend forecast stays unchanged from the earlier announcement. Within the subsequent fiscal yr, we are going to deal with returning to our earlier development path and reaching a big improve in revenue in comparison with the present fiscal yr in order that we will present enough returns to shareholders.

Web page 36. We’re happy to report 2 challenge subjects, all are associated to the hydrogen enterprise, which we count on to be our future core enterprise. This web page describes the Dakar rally, through which members of the hydrogen small mobility, Engine Expertise Affiliation, HySE, together with our firm, Kawasaki Motors, Honda, Suzuki, Toyota and Yamaha participated with hydrogen fueled engine autos. The middle of the slide exhibits the precise automobile that participated within the race.

The engine is a hydrogen fueled model of the Ninja H2s 996cc supercharged engine manufactured by our firm. The race was held in a harsh pure surroundings with excessive temperatures and lengthy distances by means of desert and mountainous to rain, however the firm completed in fourth place within the Mission 1000 class and attracted nice consideration from all over the world. You may view the precise race video on YouTube by clicking the QR code on this slide.

We hope that this video offers you a way of the chances and enchantment of hydrogen engines. We’ll proceed to contribute to the early realization of a carbon-neutral society from a worldwide perspective by means of our world-leading hydrogen know-how.

Web page 37. Within the 66th Ten Nice New Merchandise Awards introduced final month, our 1.8-megawatt 100% hydrogen-fueled dry combustion gasoline turbine gained the highest prize, the Masuda Award.

The Ten Nice New Product Awards sponsored by the Nikkan Kogyo Shimbun are given to merchandise which have been developed and put to sensible use in a given yr and that contribute to the event of producing and the strengthening of Japan’s worldwide competitiveness.

The Masuda Award we gained this time is a really prestigious award that has been given solely 24 occasions in its 66-year historical past. The award was given in recognition of the world’s first commercialized gasoline turbine geared up with the combustor that may flip hydrogen solely in a dry course of, thereby making a big contribution to the discount of CO2 emissions.

We’ll proceed to contribute to the early realization of a decarbonized society by offering extra hydrogen-fueled gasoline generators to the market.

Web page 38. From this web page onward, reference info akin to capital funding, depreciation and amortization, R&D bills and variety of workers on the finish of the fiscal yr are summarized. The variety of orders obtained per quarter has additionally been added in your reference. This concludes my clarification.

Query-and-Reply Session

Finish of Q&A