Sumitomo Heavy Industries : Consolidated Financial Report for the 1st Quarter of FY 2024

Sumitomo Heavy Industries, Ltd.

CONSOLIDATED FINANCIAL REPORT

For the Three-Month Period from January 1 to March 31, 2024

All financial information has been prepared in accordance with generally accepted accounting principles in Japan. This document has been translated from the Japanese original as a guide to non-Japanese investors, and contains forward-looking statements that are based on management's estimates, assumptions, and projections at the time of publication. A number of factors could cause actual results to differ materially from expectations. Amounts shown in this financial statement have been rounded to the nearest million yen.

Consolidated Results for the Three-Month Period from January 1 to March 31, 2024

Summary of Consolidated Financial Results
For the Three-Month Period from January 1 to March 31, 2024
	Presented April 26, 2024
Sumitomo Heavy Industries, Ltd.
Listed exchanges	Tokyo Stock Exchange
Stock code	6302
Head office	Tokyo
President	Shinji Shimomura
URL	www.shi.co.jp
Inquiries	Yoshitaka Shimamura
General Manager, Corporate Communications Dept.
Telephone	[phone]
Scheduled date for submitting quarterly	May 14,2024
report
Scheduled date of payment of cash	―
dividends
Availability of supplementary explanations	Yes
for quarterly financial statement
Holding of meeting to explain quarterly	Yes
financial statement

1. FY2024 First Quarter Consolidated Results (January 1, 2024 to March 31, 2024)

(1) Business Results

(Units: millions of yen)

	First Quarter	First Quarter
	January 1 to March 31, 2024	January 1 to March 31, 2023
		% change		% change
Net sales	254,811	2.6	248,236	―
Operating profit	18,434	14.1	16,157	―
Ordinary profit	18,766	14.7	16,359	―
Profit attributable to owners of parent	13,599	25.8	10,809	―
Profit attributable to owners of parent ratio (yen)		111.13		―
Fully diluted profit attributable to owners of parent ratio		88.24		―

Note 1: Comprehensive income:

Fiscal quarter ended March 31, 2024: 30,600 million yen, (86.2 %)

Fiscal quarter ended March 31, 2023: 16,430 million yen, (- %)

Note: The Company changed the closing date from March 31 to December 31 starting from the fiscal year ended December 31, 2022. Due to this, a consolidation period differs between the first quarter of the fiscal year ended December 31, 2023 and the first quarter of the fiscal year ended December 31, 2022. Therefore, year-on-year change rates for the first quarter of the fiscal year ended December 31, 2023 are not presented in this document.

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Consolidated Results for the Three-Month Period from January 1 to March 31, 2024

(2) Financial Position

(Units: millions of yen)

End of First Quarter As of March 31, 2024

End of Previous Full Year

December 31, 2023

	Total assets	1,254,072	1,200,857
	Total net assets	649,141	627,464
	Equity ratio (%)	51.1	51.6
Reference: Equity:
	Fiscal quarter ended March 31, 2024:	640,763 million yen
	Fiscal year ended December 31, 2023:	619,771 million yen

2. Dividends

(Unit: yen)

		Year Ended December			Year Ending			Year Ending
						December 31, 2024
		31, 2023			December 31, 2024
						(forecast)
Annual dividends per share
First quarter		―		―
Second quarter	60.00					60.00
Third quarter		―					―
End of term	60.00					65.00
Annual dividends	120.00					125.00

Note: Changes from the most recent dividend forecast: No

3. FY2024 Consolidated Forecasts (January 1, 2024 to December 31, 2024)

	(Units: millions of yen)
	Full Year
	January 1, 2024 to
	December 31, 2024
		% change
Net sales	1,110,000		2.6
Operating profit	70,000		(5.9)
Ordinary profit	66,000		(6.0)
Profit attributable to owners of parent	41,000		25.2
Profit attributable to owners of parent ratio (yen)	334.73

Note 1: Changes from the most recent dividend forecast: None

Note 2: At the Board of Directors meeting held on February 14, 2024, the Company resolved to acquire treasury shares. However, the "Profit attributable to owners of parent ratio (yen)" in the consolidated forecasts section does not reflect the impact of the acquisition of treasury shares.

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Consolidated Results for the Three-Month Period from January 1 to March 31, 2024

Additional Notes

(1) Transfers of important subsidiaries during the three months ended March 31, 2024:	None
(moves of specific subsidiaries due to change in scope of consolidation)
Newly consolidated:	-
Excluded from consolidation:	-
(2) Special accounting measures applied in the quarterly consolidated financial report:	Applicable

(3) Changes to accounting policies, changes to accounting estimates, and retrospective restatements

(i)	Changes to accounting policies due to revisions to accounting standards:	None
(ii)	Changes to accounting policies not otherwise stated in (i):	None
(iii) Changes to accounting estimates:	None
(iv) Retrospective restatements:	None

1. Number of shares issued (share capital)
2. 1. Number of shares issued at end of fiscal period (including treasury shares):

As of March 31, 2024	122,905,481 shares
As of December 31, 2023	122,905,481 shares

(ii) Number of treasury shares at end of fiscal period:

As of March 31, 2024	761,990 shares
As of December 31, 2023	418,174 shares

(iii) Average number of shares during fiscal period (cumulative quarterly period):

As of March 31, 2024	122,373,007 shares
As of March 31, 2023	122,495,089 shares

*Treasury stock that is deducted to calculate the number of term-end treasury stock and the average number of shares during the fiscal period includes shares of the Company held in the trust account related to the share delivery trust established for the stock compensation plan for directors and others.

• The Quarterly Summary of Financial Results is not subject to the Quarterly Review by a Certified Public Accountant or an Independent Auditor
• Explanation on the proper use of earnings forecasts, and other special remarks

Earnings and outlooks concerning future financial results are believed to be reasonable based on information available at the time of publication. Actual financial results may vary from the above forecast and outlook due to a variety of factors. For information on the assumptions that form the basis of the earnings forecast and items to note concerning the use of earnings forecasts, please refer to the Explanation of the Consolidated Earnings Forecast and Other Forward-LookingEstimates in the Supplementary Materials section beginning on page 3.

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Consolidated Results for the Three-Month Period from January 1 to March 31, 2024

Supplementary Materials - Table of Contents
I. Qualitative Information regarding Current Quarterly Consolidated Business Performance	....6
1.	Explanation of Business Performance	6
2.	Explanation of the Group's Consolidated Financial Position	7
3.	Explanation of the Consolidated Earnings Forecast and Other Forward-Looking Estimates	8
II. Quarterly Consolidated Financial Statements and Key Explanatory Notes	9
1.	Quarterly Consolidated Balance Sheets	9
2.	Quarterly Consolidated Income Statements and Quarterly Consolidated Statement of
	Comprehensive Income	12
3.	Items of Special Note Concerning the Quarterly Consolidated Financial Statements	14
	(Significant Events or Conditions that Question the Premise of a Going Concern)	14
	(Notes regarding Significant Fluctuations to Shareholders' Equity)	14
	(Application of Accounting Procedures Specific to Preparation of Quarterly Consolidated
	Financial Statements)	14
	(Subsequent Events of Significant Importance)	14
III. Supplemental Information	15
1.	Orders Received, Sales and Operating Profit/Loss, and Balance of Orders Received,
	by Segment	15
2.	(Summary) Quarterly Consolidated Cash Flows Statement	17

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Consolidated Results for the Three-Month Period from January 1 to March 31, 2024

1. Qualitative Information regarding Current Quarterly Consolidated Business Performance

1. Explanation of Business Performance

Regarding the economic environment surrounding the Group for the first quarter under review, in Japan, capital investment was on a gradual recovery trend mainly in the manufacturing industry, while some sectors showed a lack of strength, such as signs of hesitancy observed in the semiconductor market's recovery. Turning to overseas regions, the US economy grew, driven by its domestic demand and saw strong capital investment; however, Europe experienced an economic slowdown due to monetary tightening, and mainly the UK and German economies continued to show signs of weakness. The Chinese economy experienced a continued slowdown, triggered by a worsening real estate market. The recovery in production and consumption was weak, and demand remained sluggish, impacting even Southeast Asia. In addition, risks (such as the issue between Russia and Ukraine and the situation in the Middle East) persisted in the geopolitical landscape. Due primarily to these reasons, the economic outlook remained uncertain.

In this business environment, according to the "Medium-Term Management Plan 2026," the Group aimed to increase corporate value in a sustainable manner by solving social issues through products and services. Also, we moved forward with measures, such as expanding contribution to SDGs and strengthening initiatives for reducing negative environmental impacts, as well as improving our earning capacity and capital efficiency and strengthening our efforts to explore new businesses in order to develop a robust entity.

As a result, the Group's orders decreased by 15% as compared to the previous fiscal year to finish at JPY221.1 billion, while sales increased by 3% as compared to the previous fiscal year to finish at JPY254.8 billion. In terms of profitability, the Group posted operating profit of JPY18.4 billion (up 14% as compared to the previous fiscal year), ordinary profit of JPY18.8 billion (up 15%) and profit attributable to owners of parent came to JPY13.6 billion (up 26%).

The situation by segment is described below.

(i) Mechatronics

For small-to-medium-sized gear reducers, the Chinese market continued to be sluggish. Regarding motors and inverters, demand declined due to the impact from inventory adjustment by customers in Europe. Therefore, orders, sales and operating profit all decreased.

As a result, orders decreased by 9% as compared to the previous fiscal year to finish at JPY47.2 billion, sales came to JPY49.4 billion, down 7% from the previous fiscal year, and operating profit decreased by 47% as compared to the previous fiscal year to JPY1.7 billion.

(ii) Industrial Machinery

For the plastics machinery business, orders, sales and operating profit all decreased due to a slowdown in demand for electrical and electronics-related products in China and a continuation of sluggish investment in Europe.

For other businesses, orders decreased due to inventory adjustment and investment postponement by customers as a result of a slowdown in the semiconductor market. However, both sales and operating profit increased partly because of a significant backlog of orders.

As a result, orders decreased by 11% as compared to the previous fiscal year to finish at JPY62.5 billion, while sales decreased by 3% as compared to the previous fiscal year to finish at JPY66.5 billion. The segment posted an operating profit of JPY6.2 billion, a 13% decrease as compared to the previous fiscal year.

(iii) Logistics & Construction

In the hydraulic excavator business, orders decreased due partly to the absence of the previous fiscal year's surge in orders before the price revisions in Japan, and a reactionary drop from advanced orders in the US in the previous fiscal year. However, sales increased due to a substantial backlog of orders mainly in the US, and operating profit also rose, due partly to the impact of price revisions in Japan.

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Consolidated Results for the Three-Month Period from January 1 to March 31, 2024

Turning to other businesses, the mobile crane business saw increases in orders, sales and operating profit due to strong demand from North America. Meanwhile, for the material handling system business, orders also increased due to large- scale projects for iron production and shipbuilding, but sales and operating profit decreased because there was a limited number of projects that could be factored into sales in the current fiscal year.

As a result, orders decreased by 14% as compared to the previous fiscal year to finish at JPY84.7 billion, sales increased by 8% as compared to the previous fiscal year to finish at JPY94.5 billion. The segment posted an operating profit of JPY9.2 billion, a 55% increase as compared to the previous fiscal year.

(iv) Energy & Lifeline

The energy plant business experienced a decline in orders due to fewer large-scale modification projects for power generation facilities in Europe. However, variations in the progress of construction work led to an increase in sales, and operating profit remained unchanged from the previous fiscal year.

For other businesses, orders decreased due partly to withdrawal from new shipbuilding business from FY2024.However, both sales and operating profit saw an uptick, because of a significant backlog of orders.

As a result, orders decreased by 34% as compared to the previous fiscal year to finish at JPY25.0 billion, sales increased by 15% as compared to the previous fiscal year to finish at JPY42.9 billion, and operating profit came to JPY0.9 billion.

(v) Others

Orders increased by 3% to JPY1.6 billion, sales increased by 10% to JPY1.6 billion, and operating profit increased by 10% to JPY0.5 billion from the previous fiscal year, respectively.

2. Explanation of the Group's Consolidated Financial Position

1. Condition of Assets, Liabilities, and Net Assets

Total assets at the end of the first quarter of the current consolidated fiscal year (ended March 31, 2024) amounted to JPY1,254.1 billion, an increase of JP53.2 billion as compared to the end of the previous consolidated fiscal year. This was mainly due to increases of JPY26.5 billion in inventory assets, JPY13.9 billion in cash and deposits and JPY10.7 billion in tangible fixed assets as compared to the end of the previous consolidated fiscal year.

Total liabilities came to JPY604.9 billion, an increase of JPY31.5 billion as compared to the end of the previous consolidated fiscal year. This was partly because interest-bearing debts increased by JPY41.4 billion.

Net assets amounted to JPY649.1 billion, an increase of JPY21.7 billion as compared to the end of the previous consolidated fiscal year. This was mainly due to increases of JPY16.8 billion and JPY6.2 billion in foreign currency translation adjustments and retained earnings, respectively.

As a result of the above, the shareholders' equity ratio decreased by 0.5 point from the end of the previous consolidated fiscal year to finish at 51.1%.

2. Cash Flow Condition

Cash and cash equivalents at the end of the first quarter of the current consolidated fiscal year under review came to JPY114.0 billion, an increase of JPY13.8 billion from the end of the previous consolidated fiscal year. Cash flows for the consolidated cumulative first quarter under review and the factors contributing to increases or decreases in cash flows are as follows.

(Cash Flow from Operating Activities)

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Consolidated Results for the Three-Month Period from January 1 to March 31, 2024

Cash flow from operating activities decreased by JPY5.5 billion during the consolidated cumulative first quarter under review, and declined by JPY9.8 billion from the same period of the previous fiscal year. This was mainly attributable to an increase in payments for income taxes and an expansion in the decrease of notes and accounts payable, while an increase in inventory assets slowed down.

(Cash Flow from Investing Activities)

Cash flow from investing activities decreased by JPY12.6 billion during the consolidated cumulative first quarter under review, and declined by JPY4.2 billion from the same period of the previous fiscal year. This was partly due to an increase in expenses for acquisition of tangible and intangible fixed assets.

(Cash Flow from Financing Activities)

Cash flow from financing activities increased by JPY29.8 billion during the consolidated cumulative first quarter under review, and rose by JPY27.1 billion from the same period of the previous fiscal year. This was partly because the increase in interest-bearing debts accelerated.

3. Explanation of the Consolidated Earnings Forecast and Other Forward-Looking Estimates

No change has been made to the consolidated earnings forecast for the fiscal year ending December 31, 2024 that was announced in the financial report dated February 14, 2024.

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Consolidated Results for the Three-Month Period from January 1 to March 31, 2024

1. Quarterly Consolidated Financial Statements and Key Explanatory Notes

1. Quarterly Consolidated Balance Sheets

				(Units: millions of yen)
		End of Full Year		End of First Quarter
		As of December 31, 2023		As of March 31, 2024
		Amount		Amount
	Assets
	Current assets
	Cash and deposits	104,458		118,396
	Notes and accounts receivable - trade	289,861		287,264
	and contract assets
	Inventory assets	321,086		347,558
	Other	35,280		39,208
	Allowance for doubtful accounts	(2,400)		(2,584)
	Total current assets	748,285		789,842
	Fixed assets
	Tangible fixed assets
	Land	111,169		111,685
	Other (net)	218,837		228,989
	Total tangible fixed assets	330,007		340,674
	Intangible fixed assets
	Goodwill	19,312		19,715
	Other	26,300		27,229
	Total intangible fixed assets	45,612		46,944
	Investments and other assets
	Other	84,862		84,870
	Allowance for doubtful accounts	(7,909)		(8,258)
	Total investments and other assets	76,953		76,612
	Total Fixed assets	452,572		464,230
	Total assets	1,200,857		1,254,072

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Consolidated Results for the Three-Month Period from January 1 to March 31, 2024

				(Units: millions of yen)
		End of Full Year		End of First Quarter
		As of December 31, 2023		As of March 31, 2024
		Amount		Amount
	Liabilities
	Current liabilities
	Notes and accounts payable - trade	180,822		174,659
	Short-term loans payable	63,258		79,647
	Current portion of bonds payable	10,000		10,000
	Current portion of long-term loans	9,741		4,943
	payable
	Commercial Papers	―	30,000
	Provision for bonuses	7,753		14,796
	Provision for construction warranties	12,164		12,180
	Other provision amount	3,036		2,247
	Other	129,555		117,045
	Total current liabilities	416,329		445,517
	Fixed Liabilities
	Bonds payable	40,000		40,000
	Long-term debt due after one year	39,231		39,020
	Defined benefit liability	33,836		35,238
	Deferred income taxes on revaluation	20,408		20,408
	Provision amount	161		164
	Other	23,428		24,583
	Total non-current liabilities	157,064		159,414
	Total liabilities	573,393		604,931
	Net assets
	Shareholders' equity
	Capital stock	30,872		30,872
	Capital surplus	25,203		25,203
	Retained earnings	433,579		439,825
	Treasury shares	(1,177)		(2,744)
	Total Shareholders' equity	488,476		493,156
	Accumulated other comprehensive income
	Valuation difference on available-for-sale	6,951		7,864
	securities
	Deferred gains or losses on hedges	(956)		(1,845)
	Revaluation reserve for land	40,307		40,307
	Foreign currency translation adjustments	72,163		88,935

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