Notice of Revisions to Operating Performance Forecasts

Transcription

1 Notice of Revisions to Operating Performance Forecasts September 28, 2007 IHI Corporation ( IHI ) revises its operating performance forecasts as described below for the fiscal year ending March 31, 2008 (April 1, 2007 to March 31, 2008) from those forecasts announced on May 14, 2007 when the closing results of its financial accounts for the fiscal year were publicly announced. IHI s dividend forecast for the fiscal year ending March 31, 2008 remains unchanged. IHI recognizes that these revisions may cause inconvenience and concern to its shareholders, investors, business partners, market-related entities, and other stakeholders. We offer our sincere apologies. 1. Fiscal Year Ending March 31, 2008 (April 1, 2007 to March 31, 2008) 1) Interim Consolidated Operating Results Forecasts Operating Ordinary per Share Previously Announced 520,000 (7,000) (12,000) (8,000) ( 5.45) Current Revised 570,000 (67,000) (71,000) (50,000) ( 34.09) Difference (B-A) 50,000 (60,000) (59,000) (42,000) ( 28.64) Change (%) 9.6% Note: IHI issued today a separate release entitled Notice of Potential Revisions to Previously Announced Fiscal Year s Results. Please refer to the two releases in conjunction with each other. As indicated in the release entitled Notice of Potential Revisions to Previously Announced Fiscal Year s Results, IHI may incur an additional operating loss of up to 28.0 Billion Yen. Consequently, possible revisions to operating income, ordinary income, and interim net income may reach losses of up to 95.0 Billion Yen, 99.0 Billion Yen, and 66.0 Billion Yen, respectively. 2) Full-Year Consolidated Operating Results Forecasts Operating Ordinary Net Net per Share Previously Announced 1,230,000 40,000 30,000 16, Current Revised 1,320,000 (17,000) (27,000) 26, Difference (B-A) 90,000 (57,000) (57,000) 10, Change (%) 7.3% 62.5% 62.5% - 1 -

2 Note: For the reasons indicated in 1) above, IHI may incur an additional operating loss of up to 28.0 Billion Yen. Consequently, possible revisions to operating income, ordinary income, and net income may reach losses of up to 45.0 Billion Yen, 55.0 Billion Yen, and a profit of up to 10.0 Billion Yen, respectively. 3) Interim Non-Consolidated Operating Results Forecasts Operating Ordinary per Share Previously Announced 260,000 (11,500) (13,000) (9,000) ( 6.14) Current Revised 280,000 (67,000) (66,000) (49,000) ( 33.41) Difference (B-A) 20,000 (55,500) (53,000) (40,000) ( 27.27) Change (%) 7.7% Note: For reasons indicated in 1) above, IHI may incur an additional operating loss of up to 28.0 Billion Yen. Consequently, possible revisions to operating income, ordinary income, and interim net income may reach losses of up to 95.0 Billion Yen, 94.0 Billion Yen, and 65.0 Billion Yen, respectively. 4) Full-Year Non-Consolidated Operating Results Forecasts Operating Ordinary Net Net per Share Previously Announced 650,000 18,000 15,000 8, Current Revised 710,000 (38,000) (39,000) 18, Difference (B-A) 60,000 (56,000) (54,000) 10, Change (%) 9.2% 125.0% 125.1% Note: For the reasons indicated in 1) above, IHI may incur an additional operating loss of up to 28.0 Billion Yen. As a result, possible revisions to operating income, ordinary income, and net income may reach losses of 66.0 Billion Yen, 67.0 Billion Yen, and a profit of 2 Billion Yen, respectively

3 5) Consolidated Forecast by Industry Segment Logistics Systems and Structures Industrial Machinery Energy and Plant Aero-Engine and Space Shipbuilding and Offshore Previously Announced Current Revised Difference (B-A) Other Eliminations (80.0) (100.0) (20.0) Total 1, ) Consolidated Operating Forecast by Industry Segment Logistics Systems and Structures Industrial Machinery Energy and Plant Aero-Engine and Space Shipbuilding and Offshore Previously Announced Current Revised (Units: Billion yen) Difference (B-A) 1.0 (1.0) (2.0) (56.0) (61.0) Other Eliminations Total 40.0 (17.0) (57.0) (Units: Billion yen) Note: For the reasons indicated in 1) above, IHI may incur an additional operating loss of up to 28.0 Billion Yen. As a result, possible revision to operating income from its Energy and Plant may reach a loss of up to 84.0 Billion Yen. 2. Reasons for Operating Performance Forecast Revisions IHI reviews its annual business plan between July and September each year. Through this process it became evident that IHI is likely to suffer a substantial loss for the fiscal year ending March 31, 2008 caused mainly by the performance of its Energy and Plant

4 IHI Group s consolidated operating results forecast for the fiscal year ending March 31, 2008 is for net sales of 1.32 Trillion Yen, which is a 90.0 Billion Yen increase from its previously announced forecast. However, consequent to the downturn in profitability of its Energy and Plant, operating income has been revised to amount to a loss of 17.0 Billion Yen, and ordinary income to a loss of 27.0 Billion Yen. IHI Group expects to post a net income of 26.0 Billion Yen resulting from the disposal of its fixed assets. With regard to operating performance forecasts in businesses other than its Energy and Plant, the profitability of public works construction in IHI s Logistics Systems and Structures has decreased due to the effect of repeated suspensions from designated bidder lists to participate in domestic public tenders. However, IHI s other business areas, namely its Industrial Machinery, Aero-Engine and Space, Shipbuilding and Offshore, and Other, are progressing favorably. Factors responsible for the significant downturn in the operating performance of IHI s Energy and Plant, as well as the monetary impact thereof, are described below. (a) Downturn in Profitability of Overseas Cement Plant (Approx Billion Yen) Flaking of concrete was discovered in seven silos at a cement plant in the Middle-East which is under construction for the purpose of storing raw materials. After inspecting the extent of the damage, it was determined that approximately 60% of the silos total surface area was significantly damaged, requiring extensive repair work. This additional work will delay completion of the plant by approximately one year and inevitably will result in a substantial increase in project costs. IHI is seeking compensation from the subcontracting companies constructing these silos. However, IHI expects that it will take a long time to settle this issue so it has omitted any such corresponding amount from its earnings forecasts. There are also increases in repair work and construction on other overseas cement plants causing project delays, thus IHI expects to incur additional project expenses. (b) Downturn in Profitability of Overseas Construction Work Excluding Cement Plants (Approx. 7.0 Billion Yen) Excluding cement plants, principal overseas construction projects simultaneously underway include five boiler projects and five plant projects. However, project delays, increasing local labor costs, and defects in locally procured materials are resulting in costs to increase beyond initial expectations and negatively affect IHI s project - 4 -

5 management system. Consequently, cost reduction countermeasures have been delayed and IHI expects the situation to result in a substantial downturn in profitability of these overseas construction projects. (c) Problems in Domestic Boiler and Chemical Plant Components (Reactor) Construction (Approx Billion Yen) During the current fiscal year, IHI is working on twelve boiler projects (seven in Japan and five overseas). These projects are taking place simultaneously and are being conducted in unprecedented short time frames. Unfortunately, IHI s managerial resources have been unable to smoothly execute these processes. In particular, with regard to construction projects in Japan, IHI s engineering capacity has been insufficient due to frequent occurrences of delays to production and revisions to outsourcing, causing substantial process problems. Furthermore, there is concern that this situation will cause delays to construction projects currently in their final stages. IHI expects to incur additional expenses in order to make up for lost time and honor its contractual delivery schedules. With regard to chemical processing equipment, delays in delivery of materials are resulting in plant manufacturing delays. IHI expects to incur additional expenses to make up for lost time. (d) Extended Time Periods Required to Negotiate Increases in Contract Prices (Approx Billion Yen) Regarding IHI s nuclear power plant business, in its initial forecast IHI took into account in its sales and earnings estimates the changes in specifications and additional construction work on several projects to be completed in the fiscal year ending March 31, However, due to complications encountered during the construction approval process and subsequent delays, the conclusion of these negotiations within this fiscal year is unlikely. Taking into account these circumstances, IHI has removed these corresponding amounts from its operating performance forecasts. Also, regarding its boiler business, IHI is making efforts to claim compensation for cost increases incurred by factors attributable to its customers. However, in spite of continuing evaluation of the likelihood of being compensated for these costs, IHI has determined that a settlement remains uncertain at present. Accordingly, IHI has taken the same approach and removed these corresponding amounts from its forecasts. 3. Future Measures in Energy and Plant Operation In light of the substantial decline of operating performance in its Energy and Plant, - 5 -

6 IHI will take the following measures in the individual divisions within this business. (a) Boiler Business IHI will withdraw from overseas EPC (engineering, procurement and construction) businesses that include local construction work, while concentrating on the supply of boiler units including engineering services. IHI will allocate its resources mainly to the business of supplying key components which it recognizes as competitive and profitable. IHI will also limit the number of new jobs to be undertaken in order to effectively control project risks. At the same time, IHI will focus on maintenance and rehabilitation work for domestic thermal power plants. At present, IHI believes that such improvement measures will enable it to secure the profitability of these businesses. However, if IHI is unable to confirm sufficient profits by March 31, 2008, it will review the fundamentals of its boiler business. (b) Nuclear Power Plant Business IHI will focus its resources on the maintenance and service of light-water reactors and fuel cycling equipment. Regarding chemical plant components (reactors), IHI will create a structure that ensures sufficient profits to match input volumes against workshop capacity. (c) Environmental and Plant Business In the plant business excluding cement plants IHI will specialize in projects which give the company a competitive edge over its rivals, namely the LNG storage facility equipment business and Algeria-related projects. Regarding cement plants, IHI will adhere to its current policy of avoiding unprofitable projects. In addition to the aforementioned measures, IHI headquarters will strengthen the functions of monitoring its Energy and Plant projects at both the pre-award and execution stages. IHI will accomplish this objective by establishing a new structure function to efficiently make risk evaluations and judgments on the adequacy of cost estimates and to manage construction progress and to audit costs during the project. 4. Future Responses IHI will form an internal Investigation Committee, chaired by the President, to thoroughly examine the factors in this downward revision of forecasts. In order to verify the content and results of the investigation, IHI expects to promptly establish an external Investigation Committee comprising of attorneys and other independent third parties. IHI will promptly - 6 -

7 select and disclose the external committee members. When the Committees determine the results of the investigations, IHI will take rigorous action, including the clarification of its corporate responsibility. IHI recognizes the seriousness of revising the operating performance forecast, and sincerely apologizes for this situation to its shareholders, investors, business partners, market-related entities, and other stakeholders. IHI will make every effort to ensure a sound management structure by implementing an internal control system. <Cautionary Note Regarding Forward-Looking Statements> This document contains operating performance forecasts and other forward-looking information based on judgments made by the IHI management in accordance with the information currently available to them. Actual results could materially differ from those in the forward-looking statements for various reasons