Sojitz Corporation (2768) Earnings Call Transcript & Summary

Good afternoon. This is Seiichi Tanaka, CFO of Sojitz Corporation. Thank you very much for joining us for the earnings briefing for the quarter that ended 30th June, 2021. I will be referring to 2 documents in landscape format. They are titled Highlights of Consolidated Financial Results for the First Quarter and Supplementary Material. Both have been made available on the web. Let me now begin with the middle portion under Consolidated Statements of Profit or Loss. Revenue, which is the IFRS equivalent of net sales, the 3 contributors were Metals, Mineral Resources and Recycling, Chemicals and Automotive. Metals, Mineral Resources and Recycling was up JPY 45 billion from the same period previous year, came in at JPY 124.1 billion, thanks to higher prices and transaction volume of nonferrous materials and coal. Chemical division was up JPY 42.1 billion to JPY 133.7 billion, thanks to plastic resin transactions in Asia and its mainstay business of methanol, which enjoyed higher prices and higher transaction volume. Automotive was also up by JPY 33.7 billion. In the first quarter previous year, lockdowns severely depressed the operations and earnings, and there was a reaction. Total consolidated revenue came to JPY 492.8 billion. That's up JPY 143.5 billion from the same period a year ago. Gross profit, again, the contributors were the same 3 segments that pushed up revenue figures. Consolidated gross profit came to JPY 56.4 billion. That's up JPY 17.4 billion from the same period a year ago. Going down to SG&A. Increased transaction volumes pushed up SG&A. New investments incurred due diligence costs, which were part of nonpersonnel expenses. There were also SG&A increase associated with newly associated entities. The total SG&A increased by JPY 3 billion and came to JPY 41.8 billion. Going down to other income and expenses or nonrecurring items. In Q1 this year, there was very little, except for what is included in the second bottom line item, which says Other Operating Income and Expenses. There is JPY 1.1 billion in income share. This includes the gain on divestment of operations at a machinery subsidiary and valuation difference associated with forward exchange contracts. Going down to Financial Income and Costs. Net of interest expenses improved by JPY 800 million from the same period a year ago to expenses of JPY 1.2 billion. Dividends received was almost unchanged from the previous year at JPY 1.2 billion, and the net was 0. Further down, the share of profit or loss of investments accounted for using the equity method. This line item increased by JPY 5.8 billion to JPY 7.5 billion, thanks to higher profit from steel operating company. With all this, profit before tax came to JPY 23.2 billion. After income tax expenses, profit for the period came to JPY 18 billion. Further down, the part highlighted in blue, profit attributable to owners of the company came to JPY 16.9 billion. That's up JPY 14.5 billion from the same period previous year. To the right, on the same row, you can see that this quarterly figure is 32% of the full year forecast of JPY 53 billion. So we are off to a good start. Further to the right to the consolidated statements of financial position. At the end of June 2021, total assets came to JPY 2,449.4 billion. That's up JPY 149.3 billion from the end of March. Trade and other receivables increased. Inventories increased, too. And there was execution of new investments and loans. Total liabilities at the end of June came to JPY 1,769.6 billion. That's up JPY 124 billion from the end of March. To the equity section, there is the underlined line item that says total equity attributable to owners of the company. Compared with the end of March, this item increased by JPY 26.2 billion to JPY 645.2 billion at the end of June. There was a JPY 16 billion increase due to the acquisition of treasury stock and dividend payment, but then a profit for the period and the increase in other components of equity meant that the net total increased. Further down, we are showing 6 key financial indicators. I'd like to draw your attention to the third one, net debt-equity ratio. So total assets increased but net interest-bearing debt increased more and therefore, this ratio increased by 0.09 from the end of March and came to 1.08 at the end of June. Further down, and cash flows. For cash flows from operating activities, if you look at core operating cash flow, this is an -- cash inflow of JPY 26.6 billion. But due to the increase in general working capital, cash flow from operating activities was actually a net outflow of JPY 18.8 billion. Cash flows from investing activities increased by -- or actually was a cash outflow of JPY 42.5 billion due to new investments. Free cash flow was a net outflow of JPY 61.3 billion. Core cash flow was a net cash outflow of JPY 11.1 billion. That's related to the shareholder return measures that was worth JPY 11.6 billion. Now let me turn to the second page that says Supplementary Material. And I'd like to focus on the large table in the middle that shows Segment Performance. I'd like to particularly focus on profit for the period. First, Automotive. In Q1 last year, lockdowns in many countries depressed earnings overall. This time, we have a reactionary increase. So Q1 results were up JPY 2.9 billion year-on-year, came in at JPY 1.1 billion. This is 22% of the full year forecast. Aerospace & Transportation Project. This benefited from the recovery in shipping market conditions. Last year, Q1 was a loss, but this year, we have come to profitability by JPY 100 million, although this is only 2% of the full year forecast. Having said so, there is a seasonal factor. Part-out business and defense-related businesses tend to have their earnings recorded in the second half. And therefore, at this point in time, we don't see there is any concern with regard to us achieving the full year forecast. Going to Infrastructure & Healthcare. In the same period previous year, there was a gain on partial sale of power generation business, and there is a reactionary decline this time. So the profit figure for the quarter is JPY 800 million. That's 11% of the full year forecast. But again, there's a lot of earnings expected in the second half. For example, Nissho Electronics expects more IT-related CapEx from its customers in the second half. And LNG Japan also has more earnings in the second half. And therefore, we don't think there is a concern with regard to achieving the JPY 7.5 billion annual forecast. Metals, Mineral Resources and Recycling. As is written in the slide, the profit increased due to higher profit from steel operating company with recovery of steel demand and recovery in coal market conditions. Profit for the quarter was up or improvement of JPY 8 billion, came in at JPY 6 billion. This is 50% of the full year forecast. So this segment is doing very well. Chemicals. Methanol production and sales has been strong, and plastic resin transactions in Southeast Asia is also strong, and petrochemicals in the Americas is also strong. The profit for the quarter increased by JPY 4 billion, came in at JPY 4 billion, and that's 38% of the full year forecast. Consumer Industry & Agriculture business. This increased due to higher sales volumes in overseas fertilizer business. The profit for the quarter came in at JPY 3 billion. That's up JPY 900 million from the same period last year. And the profit for the quarter is 60% of the full year figure. In addition to fertilizers, lumber products prices were higher, and imported plywood demand has also been stronger. Retail & Consumer Service. The quarterly figure is only 12% of the full year forecast, but imported beef prices are more stable and transaction volume is also increasing and firm. And therefore, the profit figure was up JPY 500 million from the previous year. And again, in the second half, we are expecting earnings coming from real estate-related operations. So at this point in time, we do not have particular concerns with regard to achieving the full year forecast. This is all from myself. Thank you very much for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]