Mitsubishi UFJ Financial Group, Inc. (8306) Earnings Call Transcript & Summary

This is Kamezawa. Thank you for taking time out of your busy schedule today to attend this MUFG IR presentation. Since CFO, Togawa, explained the contents of the FY '23 financial results at the recent web conference already, I would like to just touch on the financial results very briefly today and focus on the review of the previous medium-term business plan and the new 3-year medium-term business plan starting this current fiscal year. Please proceed to Page 6 of the material. In FY '23, net profits or profits attributable to owners of parent Line 6 was JPY 1,490.7 billion, a historical high since the establishment of MUFG. The impact of the sale of Union Bank was reversed in a single year, resulting in an increase of approximately JPY 370 billion year-on-year. The main reason for this was a significant increase in NOP due to enhanced earnings power, especially in the customer segments. Please turn to Page 7, performance target for FY '24. We have set a target of JPY 1.5 trillion for profits attributable to owners of parent. The negative impact of appreciation in FY '24 will be offset mainly by increasing NOP. Please turn to Page 9, a review of the financial results of the previous medium-term business plan. Over the 3-year period, our operation had focused on the ROE with profits, expenses and risk-weighted assets as the 3 drivers in order to secure achievement of our ROE target of 7.5%. Profits bottom left, that is profits attributable to owners of parent exceeded JPY 1 trillion, 3 years in a row, reaching JPY 1,490.7 billion in FY '23, far exceeding the target as a result of steady completion of our growth strategy and growth in NOP in the customer segment. Considering that the profit for FY '20 was JPY 777 billion. This means that we have achieved profit growth above JPY 700 billion in 3 years. Expenses bottom center, excluding the impact of foreign exchange, was controlled below the FY '20 level as originally targeted. Resources generated through structural reforms, including the sale of Union Bank and control of base expense were redirected to growth areas, both in Japan and overseas, leading to expansion of businesses. Risk-weighted assets shown bottom right, were controlled to the equivalent level of that end of FY '20, excluding the impact of foreign exchange rates, considering the fact that we were able to significantly increase profits, we believe that we were able to thoroughly manage our operations with a focus on risk return. Page 10 shows the efforts and major achievements to increase shareholder value. Over the past 3 years, we have worked hard on our growth strategy, structural reforms and capital management, raising ROE resulting in a P/B ratio near 1x. In addition, we have taken steps for future growth. Please continue to the next page. Under our purpose, committed to empowering a brighter future and with the initiatives of corporate transformation, we are making significant progress in gaining a firmer grasp in each area. I will discuss the details later along with the future initiatives. As you can see on the right, we also use capital for future growth. While we completed the sale of Union Bank to U.S. Bancorp, over the past 3 years, we have made more than JPY 700 billion in strategic investments in our focus areas of Asia, digital and AM/IS to expand our business portfolio for future sustainable growth. Next page, Page 12, shows a growth of profits attributable to owners of parent and trends of its components. You can see how we have improved our earning power by diversifying our business portfolio while flexibly responding to changes in the environment. While the yen denominated net interest income, the red line graph remained low due to the extremely low interest rate environment, foreign currency-denominated net interest income, the orange line graph and net fees and commissions, a yellow line graph grew substantially and profits attributable to owners of parent. The bar graph reached a record high. Page 13 shows trend of EPS and total number of issued common stock. In addition to steady profit growth, EPS grew significantly and reached the highest level since the establishment of MUFG as a result of continued efforts to buy back shares. The total number of issued common stock has recently returned to a level close to that before the capital increase in fiscal 2008. Please turn to Page 14. To conclude my review of the previous MTBP, I’d like to take a bird's eye view of our business portfolio and talk about the strength of MUFG. In Japan, which accounts for just under 50% of our revenue, our largest customer base and balance sheet will be the source of our competitiveness and profitability going forward. As Japan gets out of deflation, welcoming the world of positive interest rate and achieve recovery in Asia, which accounts for more than 20% of our revenue,. Bottom left, MUFG's exposure in the APAC region is already the largest in the world. By leveraging our platform, which includes our franchise with partner banks at the core plus the digital financial players we have invested in so far, we are now able to connect with people's various economic activities. We believe we are positioned advantageously to capture Asia's high economic growth in a multidimensional manner. Top right, the U.S., the world's largest economic zone accounts for about 30% of our revenue. In addition to concentrating our resources in the wholesale business and continuing steady profit growth through Morgan Stanley, we are also able to capture stable growth of the U.S. economy as a whole. We also have the functional strength to support these activities. In addition to the world's #1 product strength in project finance and other areas and the integrated management structure of GCIB in Europe and in the U.S., we have complementary functions and market presence deriving from our alliance with Morgan Stanley. The only partnership forged between global financial institutions in the world. In the AM area, [indiscernible] has surpassed JPY 9 trillion in total asset series and has a top share of publicly offered equity investment trust. In the IS area, MUFG is a leader when it comes to asset-management balance in Japan. MUFG has a unique business portfolio that is among the best in the world. We will further evolve this portfolio over the next 3 years and grow in tandem with the global economy. From here, I’d like to talk in detail and outline our new medium-term business plan. Please go to Page 16. First, on environmental awareness. We are now in an era of unprecedented division with a title shift to green and digital technologies accelerating after the COVID-19 pandemic and with swing back of geopolitical risks and globalization. The networks and solutions we own have the ability to connect. In this era of growing divisions, we hope to help all of our stakeholders advance forward by becoming a force for connection in the midst of this division. Please go to Page 17. This is a basic policy of our new medium-term business plan. We will position these 3 years as 3 years to pursue and produce growth. Viewing the changes in the environment surrounding MUFG as an opportunity. We will aim to realize sustainable growth by taking on more sophisticated initiatives to solve societal issues and by stepping up the gear of our growth strategy in line with these efforts. We will change ourselves in order to remain the trusted and chosen financial group. We will accelerate our corporate transformation through speedy reforms and strengthening of our management foundation, including medium- and long-term growth investments. We will seize growth connect to the future and transform the company. These are the 3 pillars of our medium-term business plan to achieve our purpose. Please turn to Page 18, financial targets. Our management policy of focusing on ROE remains unchanged, and we have set our ROE target for FY '26 at approximately 9%. The assumption of the Japanese policy rate is 0.1%. The effect of the measures will raise ROE by about 1%. The target range for the CET1 ratio relative to this is 9.5% to 10.5%. The upper limit of the range has been increased in order to improve transparency in capital management. Profits, expenses and risk-weighted assets are drivers to achieve ROE target, and this also remains unchanged. The first profit, we aim to achieve net operating profit of at least JPY 2.1 trillion in FY '26, an increase of 30% over FY '23 and profits attributable to owners of parent of at least JPY 1.6 trillion. The second expenses target is to continue disciplined management of expenses with an expense ratio of approximately 60% for the same year. And the third target is to replace risk-weighted assets with more profitable assets. We hope to realize our ROE target for FY '26 and to shoot for ROE of 9% to 10%, which we have set as a mid- to long-term goal. Page 19 shows profit growth and the growth potential associated with the changes in the environment. Over the past 3 years, we have increased net operating profit by JPY 400 billion. And over the next 3 years, we aim to further increase the growth of NOP by over JPY 500 billion to more than JPY 2.1 trillion. As I mentioned on the previous slide, these figures are not based on the assumption that yen interest rates will rise in the future. We estimate the impact of future rise in the interest rates on our business performance to be of an increase of JPY 85 billion to JPY 150 billion if yen interest rates rise at 15 bps [indiscernible] as shown on the right. Page 20, about the evolution of our growth strategies. We have developed our business into 4 quadrants of products and channels, existing and new products and extracted areas of focus for growth over the next 3 years. And after thorough discussion in house, 7 growth strategies were formulated. As shown on the right side, from 1 to 3, we will establish a competitive advantage by refining the solution capabilities and strengthening our risk-taking capabilities in the following 3 areas: strengthening of our domestic retail customer base, strengthening our corporate wealth management business, enhancing our GCIB global market integrated business model. For domestic retail, we will expand lifetime value through the evolution of the customer experience and for corporate and wealth management, we will accelerate the efforts to meet people's succession needs. And for GCIB and global market integration, we will expand into adjacent areas where we can leverage the strength of our core businesses. Fourth is strengthening the APAC business and platform resilience in Asia. In addition to the organic growth of our partner banks, we will expand our business areas, mainly in the digital domain and expand MUFG's economic sphere. This contributing to realizing Japan as an asset management center, we will strengthen our asset management capabilities in Japan and overseas to meet the asset management needs of the next generation. Sixth to support the value chain from the GX perspective, we will provide solutions to management issues that go beyond financing to support and promote GX investment by our customers. Finally, the seven is our strategy is the challenge to build a new business portfolio. We will take on the challenge of developing new businesses in areas other than existing channels and services in light of social and customer challenges and new technological developments. Page 21 shows the contribution of growth strategies to NOP growth. We will increase net operating profit by JPY 500 billion in 3 years by completing our growth strategy while further raising the profitability of BS in view of changes in the interest rate environment. Please see Page 22. We have rushed up our priorities to realize sustainable environment and society. We will accelerate our efforts by integrating our contribution to solving societal issues into a management strategy. On Page 23, this is our past initiatives and newly established KPIs related to our priorities. In addressing climate change, we are directly participating in initiatives such as the NZBA, and the World Bank's private sector investment lab, contributing to the creation of our international framework for transition finance. This is one of the initiatives in which MUFG has demonstrated its unique international leadership. By further accelerating our efforts to date and challenging ambitious KPIs shown on the right, we will link our efforts to solving social issues to the expansion of business opportunities and enhance the social and economic value of MUFG. Page 24 is about corporate transformation. Through the various initiatives we have undertaken thus far, I feel that the mindset of employees to take on challenges on their own has become much more widespread within the company. We have also reformed our HR system to support this mindset. Moving forward, we will accelerate our corporate transformation by continuing our past efforts while also working to increase speed and strengthen our management foundation and create a corporate culture in which each and every employee thinks independently makes decisions independently in an agile manner. Please proceed to the next page. As shown on the left, we will accelerate transformation through 4 initiatives, namely accelerate agility transformation, expand human capital investment, increase system development capacity and enhance AI and data infrastructure. Specifically, we have added agility to the new value of MUFG way, and we have established an organization dedicated to consolidating and developing AI intelligence across the company. We also need to strengthen our management foundation to support the 3 pillars of our medium-term business plan that I have discussed so far. On the right, we will raise overall system investment to JPY 800 billion, an increase of weight of strategic investments and projects to strengthen the foundation. Page 26 is the cost control. On the left, over the past 3 years, the expense ratio has improved from about 69% to 61% due to a decrease in total expenses and an increase in gross profit. In the next 3 years, we will invest resources in business enhancement, infrastructure reinforcement and system-related expenses. At the same time, we will use a combination of expense ratio control measures and actual expense control with thorough discipline and improved the expense ratio to around 60%. And Page 27 is risk-weighted asset control. We aim to raise the ROE of the entire company by reducing unprofitable assets and selling equity holdings, while promoting the replacement of assets with more profitable ones and slightly increasing the net ROE. Page 28 is about inorganic strategy. On the left, the profitability of our investments to date in partner banks and overseas AM/IS has, on average, grown to 10% in ROE after amortization of goodwill, driving up the company-wide ROE. Furthermore, we are accelerating the investments in nonbanks in Asia, where economic growth is remarkable and in digital financial players that could become top players in the future, expecting to reach an ROE before amortization of around 20% in FY 2033. Going forward, we will focus on 4 key areas: digital, Asia, overseas, AM/IS plus new businesses. We aim to build a business portfolio that can achieve medium- to long-term growth while making disciplined utilization of capital. Page 29 is about the enhancement of our strategic alliance with Morgan Stanley. In April of this year, the Global Steering Committee, the first meeting since Ted Pick became CEO was held in Tokyo to discuss further collaboration. Through close collaboration at various levels, including the heads of business divisions of both companies, we will deepen our existing collaboration and expand it into new areas shown in the upper right corner of this slide. In the domestic securities business, Mitsubishi UFJ, Morgan Stanley Securities, Morgan Stanley MUFG Securities and AU Kabucom Securities will work together to become the top securities company here in Japan. Please turn to Page 30. This is our basic policy for capital allocation. Disciplined capital management will remain unchanged. While maintaining financial soundness, we will also utilize capital for growth and strive to enhance shareholder returns. The following pages describe our specific capital management policies. Page 31 is capital allocation policy. The left side shows an image of capital allocation over the past 3 years. We have returned approximately JPY 2 trillion to shareholders, which is about half of the allocation source cumulatively over the 3 years, while also making strategic investments for growth. As shown on the right, we have set our dividend payout ratio at approximately 40% for the next 3 years based on the progressive dividends based on profit growth, we will continue disciplined capital management and strike a balance between investment for sustainable growth and shareholder returns. Page 32 is a capital management policy. In the past, they have been phases in which we have exceeded our target range as a result of prioritizing retained earnings when uncertainty of the business environment heightened. Going forward, the upper limit of the target range will be increased to 10.5% in order to improve the transparency of capital management while maintaining progressive dividend payments as a basis of our returns policy, we will consider additional shareholder returns and the use of capital for growth in light of the business environment. Page 33 is the actual results of the shareholder return. The total payout to shareholders in FY '23 was JPY 888 billion, total payout ratio of approximately 60%. For FY '24, we are forecasting an annual dividend of JPY 50 per share, an increase of JPY 9 per share for the second consecutive year. The payout ratio will be approximately 40%. In addition, we have resolved to repurchase up to JPY 100 billion of our own shares. We will continue to aim for stable and sustainable increase of dividend per share through profit growth. Page 34, reduction of equity holdings. The cumulative book value of shares sold over the past 3 years was JPY 539 billion, exceeding the upwardly revised target. Over the next 3 years, we will further reduce our holdings by setting a sales target of JPY 350 billion. During the next MTBP period, we aim to reduce the ratio of market value to consolidated net assets to less than 20%, including shares deemed to be held by the company. Please turn to Page 35. To summarize what I have said so far, I would like to talk about what we, MUFG, are aiming for in our new medium-term business plan. We aim to further increase shareholder value by achieving steady profit growth while at the same time, investing for future growth. With investors' understanding of these efforts, as shown on the right, we would like to start by raising the P/B ratio to a stable level above 1x. That concludes my explanation. I would like to ask our investors and rating agencies for their further understanding and cooperation. Thank you.