Mitsubishi Corporation (8058) Earnings Call Transcript & Summary

Thank you. This is Nakanishi, the President. Thank you very much indeed for coming to the announcement of the results for the 6 months ended September 2022. First, I'd like to talk about the overall business results and ask our CFO, Mr. Nouchi, to give you some details. What I would like to explain to you, there are 4 points as follows. The first is that 6-month consolidated net income doubled year-over-year -- almost doubled to reach JPY 720 billion. The second point is that we made the upward revision to the forecast for the year from the initial forecast in May of JPY 850 billion to the JPY 1.03 trillion, which is the highest record. The third is that we have determined to pay the annual dividend, and we changed the annual dividend forecast from JPY 150 per share that we announced in May to JPY 155 per share. And also, we decided to make the share repurchase amounting to JPY 70 billion. And lastly, I'd like to explain the progress of our midterm corporate strategy. So please refer to the material, which is titled Results for the Six Months Ended September 2022. Please look at Page 1. So let me first explain the summary of the year-over-year fluctuations. Please take a look at the bottom left box. The 6-month consolidated net income was JPY 720 billion, which was record high for the first half of the fiscal year. This is 2 years in a row. The Mineral Resources segment was strong. And also in Urban Development in Q1, we booked sales gain on the real estate management company. And also the Automotive and Mobility, Industrial Materials, and Petroleum and Chemical Solutions showed steady earnings. Next, let me talk about the forecast for the year as well as the shareholder return. Please take a look at the bottom right box. As for the forecast for the year, we are making the upward revision by JPY 180 billion from the initial forecast that we made in May of JPY 850 billion to JPY 1.030 trillion. In addition to the tailwind of the resource prices, we included the higher earnings of the Automotive and Mobility, Power Solutions and Industrial Materials. In the second half of the fiscal year, we expect the deceleration of the global economy and expect tough business environment. And therefore, we have also included some downward impact risk to the revised forecast. Based on that, the forecast for earnings, independent of the market forecast that are shown in our Midterm Corporate Strategy 2024 remains the same at JPY 650 billion. As we made upward revision of the forecast, we have determined to increase our dividend payment and also to conduct the repurchase of the shares. As for the dividend, based on the progressive dividend policy, as we conducted the share repurchase, the outstanding share number has decreased. Therefore, the dividend per share increases. And based on the expected sustainable profit growth, we have decided to increase our annual dividend payment forecast to JPY 155 per share and also made a decision to make the share repurchase amounting to JPY 70 billion. After the repurchase, all the shares will be retired. Based on this return to the shareholders, the payout ratio in total will be 28.7%. But in the second half of the fiscal year, based on the fact that our payout ratio last year was 31%, we will determine to conduct additional shareholder return to reach the total payout ratio of 30% to 40%, which is our target in Midterm Corporate Strategy 2024. So if I may summarize the business results, despite the geopolitical risks, including the Russian invasion of Ukraine as well the global inflation, we are faced with a quickly changing environment, but we managed to capture the market tailwind and each business showed the increase of the earnings. And we implemented a cyclical growth model that we mentioned in the Midterm Corporate Strategy 2024, and we booked the capital gains. So we managed to show our strength in this business results. But as the global economy decelerates, our business environment is expected to become even tougher from now on. For this fiscal year, we expect above JPY 1 trillion net income, and also as for the underlying operating cash flow, which is expected to be above JPY 1 trillion and ROE is expected to be double digit, 14% or so, but we are not going to become complacent and work steadily on the measures of the Midterm Corporate Strategy to increase the medium- to long-term corporate value. Lastly, in the Midterm Corporate Strategy 2024, our growth strategy is EX, DX, and creating a new future. And I would like to explain about the progress of each of these growth strategies. In terms of EX, we have been developing Peru's Quellaveco copper mine from 2018, and this July have started production. Copper is an indispensable resource through the advancement of electrification and EV to realize carbon neutral society. In terms of the copper equity capacity, with the launch of this project, currently, it is annually 200,000 tonnes, and it's going to increase by 1.5x to 300,000 tonnes. Going forward, we will focus on securing a stable supply of the copper resources. Next about DX. As stated in the Midterm Corporate Strategy, as an organization to promote DX strategy in July, we have set up industry DX group, which includes 150 staff. By multiplying the various businesses in DX, it means a fusion of real and digital, a new business opportunity is going to be created, and we are going to accelerate this initiative. In terms of creating a new future, we are focusing on developing a vibrant community by promoting both EX and DX. In the first half of 2022, with multiple local municipalities, we have been able to have a partnership agreement for the revitalization of the region. And we have opened new domestic branches. So we are accelerating this initiative. I would like to focus on why we are focusing on creating a new future. And I would like to briefly touch upon this. Japan's economy for the last 30 years, the GDP has not grown and the growth is stagnant. The globalization, which takes assumption of peace, that means the Japanese companies had advanced into overseas for the manufacturing sites and earnings has been returned to Japan every year. But that has led to a lower appetite for capital investment in Japan. And the capital investment has not been conducted in Japan. And this, I think, is one of the reasons. How should the future of Japan be? To be able to look for the recovery of the industrial competitiveness of Japan, including enhancing the self-sufficiency, we have to focus on energy issues, meaning that the EX and DX. We should focus on revitalization of the domestic industries and promote new businesses in the region. I think that it will be very important to revitalize the regions. In the Midterm Corporate Strategy 2024, we have these growth strategies. When executing these growth strategies and through solving social issues by creating immensely shared value, we would like to focus on this and advance this. This ends my presentation. I would like to ask Nouchi, the CFO, to explain more in detail about our financial results.

I am Nouchi, the CFO. I would like to follow up some points. So I would like to talk about the 6-month results further by segment. Please turn to Page 2 of the presentation material. In this 6-month results, out of the 10 segments, in 8 segments we have seen an increase of profit. I would like to focus on the segments that had a large amount of increased profit. On the left-hand side, next to the first, the Industrial Materials, in North American plastic construction equipment, we have seen increased equity earnings. And through the increase of trading profit and functional material, we have seen an increase of JPY 16.5 billion from the JPY 20.8 billion from last year to JPY 37.3 billion. With the Petrochemical Solutions business, in the chemical business, we had the deduction of deferred tax liabilities, and through the increase of the equity profit of the LPG business, we have seen an increase of JPY 15.1 billion to reach JPY 35.7 billion. For the Mineral Resources in the Australian metallurgical coal business, through the increase of the market, we have seen a JPY 178.8 billion increase, reaching JPY 321.5 billion. Going into the right-hand side of the materials. In Automotive and Mobility business, the ASEAN Automobile business and the Mitsubishi Motors business, we have seen an increase in equity income. From the previous year, we have seen an increase of JPY 33.5 billion, reaching JPY 85.5 billion. Lastly, with the sales of the real estate management company under the Urban Development business, compared to last year we have seen JPY 99 billion of increase, reaching JPY 114.6 billion. Next, I would like to explain about the cash flow situation. Please turn to Page 3. On the right-hand side of the bar graph, that will be the 6-month 2022 cash flow situation. The green operating cash flow has been the JPY 707 billion cash in. For the blue, investment cash flow, JPY 20.5 billion cash out. As a result, the adjusted free cash flow is JPY 686.5 billion. So in terms of the investing cash flow, the breakdown is as shown on the blue box on the lower right-hand side. In terms of the cash out, copper business, the European power business, and the Australian metallurgical coal investment and loans has been conducted. So that was JPY 427.2 billion. On the other hand, in terms of the cash in, through the sales of the real estate management company and the North American shale gas business, the aluminum smelting business, we have been able to recover the investment. This means that JPY 406.7 billion has been recovered. The investing cash flow on a net basis has been a cash out of JPY 20.5 billion. Going to Page 4. As Mr. Nakanishi has explained at the beginning for the full year outlook of the performance against the initial plan that we announced in May, we're going to make a revision of JPY 180 billion, and it's going to be JPY 1,030 trillion. By segment, out of the 10 segments, 8 segments will see upward revision. I would like to focus on the 3 segments that have a higher ratio of the revision. First, on the left-hand side, fourth from the top, Mineral Resources. The equity income and there is a decline in the earnings and dividend income in the copper business, but the increase in the equity income of the Australian metallurgical coal business, we have made upward revision of JPY 68 billion to JPY 399 billion. Next, on the right-hand side, at the very top, the Automobile and Mobility business, there has been an increase of the equity income from the ASEAN Automobile business and the Mitsubishi Motors business. Against the initial plan, we are going to make an upward revision of JPY 35 billion to JPY 133 billion. Lastly, for the Power Solutions business, there has been a sales gain of power-generating assets, and in the U.S. Power business, there has been an increase in equity income. This is going to be upward revision of JPY 26 billion and JPY 60 billion will be the outlook. On Page 5, this will be the reference information that will be the assumptions of the market conditions. Please refer to it later. That's all from me. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]