Yokogawa Electric : Presentation Materials of Financial Results for Fiscal Year 2023 and Medium-term Business Plan Fiscal Years 2024-2028 (Script Including Q&A)

Yokogawa Electric Corporation

Financial Results Briefing for the Fiscal Year Ended March 2024

May 7, 2024

Event Summary

[Company Name]	Yokogawa Electric Corporation
[Company ID]	6841-QCODE
[Event Language]	JPN
[Event Type]	Earnings Announcement
[Event Name]	Financial Results Briefing for the Fiscal Year Ended March 2024
[Fiscal Period]	FY2023 Annual
[Date]	May 7, 2024
[Number of Pages]	56
[Time]	17:30 - 18:56
	(Total: 86 minutes, Presentation: 40 minutes, Q&A: 46 minutes)
[Venue]	Webcast
[Number of Speakers]	2
	Hitoshi Nara	President and Chief Executive Officer
	Michiko Nakajima	Vice President, Head of Accounting &
		Treasury Headquarters

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Nakajima:

The key points of the current financial results are shown on page 4 of the document. I will explain in the following pages.

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Page five, financial summary.

Orders received were JPY542 billion, an increase of JPY4.8 billion from the previous year, or 0.9%, excluding the impact of foreign exchange rates. We recovered from the negative growth in the first three quarters and secured growth for the year.

Sales were JPY540.2 billion, a significant increase of JPY65.1 billion, or 14.3%, over the previous year, excluding the impact of foreign exchange rates. Since Q4 of FY2022, the sales growth rate has been sustained as order backlogs continued to boost sales due to an improved procurement environment for parts and other items. Another major factor in the increase in sales was the contribution to sales of large- scale project orders received after COVID-19.

Operating income was JPY78.8 billion, up JPY34.4 billion from the previous year, and net income was JPY61.7 billion, up JPY22.8 billion from the previous year. Although impairment losses on goodwill related to strategic investments were recorded in Q2 and Q4, this was offset by an increase in operating income and a gain on sales of investment securities recorded in Q1, resulting in an increase in net income for the period.

On an actual basis, excluding the impact of foreign exchange rates, orders received exceeded the forecast announced in February by more than JPY10 billion, while operating income exceeded the forecast by approximately JPY6 billion due to an improvement in gross profit resulting from the excess sales.

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Page six shows the analysis of changes in operating income.

Operating income increased by approximately JPY30 billion from JPY44.4 billion in FY2022, excluding the impact of foreign exchange rates. In addition to the JPY29.2 billion increase in gross profit due to higher sales, a JPY10.9 billion improvement in gross margin made a significant contribution. As for the gross profit margin, in addition to the effects of price increase measures, the improvement in gross profit of products, such as a decrease in the fixed cost ratio due to an increase in the production capacity utilization ratio, contributed significantly to the improvement in gross profit.

Project gross profit margins have also improved over the year, although there are quarterly fluctuations. As for the breakdown of the results, the Company has improved its profit margin through productivity improvement measures in project procurement and other areas, At the same time, as an investment for the future, it has strengthened its efforts to win orders for strategic projects that may involve allowance for construction losses.

SG&A expenses increased by JPY10.9 billion from the previous year. Although there were increases in costs related to new businesses, Depreciation of goodwill related to strategic investments, and activity expenses such as sales commissions associated with increased sales, as well as the impact of labor cost inflation, the amount of the increase was in line with the earnings forecast disclosed in February.

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Page seven shows orders, sales, and operating income by segment.

I will explain the control segment shown in blue. Orders increased by JPY27 billion from the previous year, or 1.9% excluding the impact of the foreign exchange rate. Sales increased by JPY76.3 billion, a significant 13.8% increase excluding the impact of foreign exchange rate. Operating income increased by JPY30.6 billion. I will not discuss the reasons for the increase/decrease, as they are already explained in the explanation of the company-wide situation given earlier.

Next is the measuring instrument segment in yellow. Orders received were minus JPY2.7 billion, a decrease of minus 12.9%, excluding the impact of the foreign exchange rate. In addition to the rebound from the strong performance in H1 of the previous year, customers have been adjusting their advance orders due to improved production lead time in FY2023.

On the other hand, sales increased by JPY6.8 billion, or 21.8% excluding the impact of foreign exchange rate. The level of sales is approximately JPY6 billion higher than the level of orders received. This is due to the improvement in production lead time, has allowed customers to adjust their advance orders, as well as progress in the completion of the backlog of orders. Operating income increased by JPY2.7 billion.

There previous year was the same for the new businesses and others shown in green.

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Page eight shows orders and sales by region in the control segment.

Orders on the left, have been strong in India, the Middle East and Africa, while the slowdown in China that began to emerge in Q3 is continuing.

In India, sales grew by more than 30%, excluding the impact of foreign exchange rates. In the Middle East, we have secured an annual growth rate of nearly 15%, partly due to the considerable accumulation of large- scale projects in Q4.

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Page nine shows orders and sales by the control subsegment.

The graph shows three sub-segments from the bottom: Energy and Sustainability, Materials, and Life.

As for the orders, on the left side graph, shows that the bottom line, Energy & Sustainability business, increased by JPY23.7 billion from the previous year, or 6.3% excluding the impact of foreign exchange rates. In Q4, large orders received, which made a considerable contribution.

Materials business in purple decreased by JPY2.1 billion YoY, or 4.3%, excluding the impact of foreign exchange rates. In addition to the longer-than-expected adjustment phase in the materials industry, the slowdown in orders received due to the slowdown in the Chinese economy became apparent from Q3 onward, making for a difficult year. However, in Q4, we won a large project for mining in Australia, and in Japan, we have been accumulating orders for pulp, steel, and other products, which has reduced the decline compared to Q3.

Life business in orange increased by JPY5.4 billion, or 6.4%, excluding the impact of foreign exchange rates. Note that food, pharmaceutical, and water sales grew mainly in Japan amid continued strong base orders.

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Page 10 shows the quarterly trend of these three industry segments, broken down by industry segment. Since this duplicates the explanation on page 9, I will omit the explanation today.

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Page 12 briefly summarizes the business environment perceptions by region and industry, on which we base our earnings forecasts.

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