Mitsui & Co., Ltd. (PNK:MITSY) Q2 2024 Earnings Call Transcript

Mitsui & Co., Ltd. (PNK:MITSY) Q2 2024 Earnings Call Transcript November 6, 2023

Kenichi Hori: Good morning, I’m Kenichi Hori, CEO. Thank you for joining us today. I will begin with an overview of the First Half Operating Results and the Full-Year Forecast. And I will then hand over to Masao Kurihara, General Manager of the Global Controller Division, who will speak on this in more detail. During the first half, the overall global economy continued to slow. Even in such an environment, Mitsui has been able to generate earnings exceeding the figures laid out in our business plan, that we announced in May, through our global business portfolio that spans across a wide range of industries. I will now summarize our operating results for the first half of this fiscal year. Core operating cash flow COCF decreased by JPY136.4 billion year-on-year to JPY475.1 billion, and profit decreased by JPY82.8 billion to JPY456.3 billion, however both made solid progress against the business plan.

In light of this progress, we revised up the full-year forecast. Compared to the business plan, we have increased our forecast for COCF by JPY90 billion to JPY960 billion and profit by JPY60 billion to JPY940 billion. Furthermore, as we were able to reconfirm the robustness in our cash flow which was enhanced through the previous Medium-term Management Plan MTMP, we have raised the full-year dividend by JPY20 per share to JPY170, which will be the new minimum level during the current MTMP, ending in fiscal year March 2026. In addition, as we made progress with several asset sales, including a large-scale one, we have decided to implement additional share repurchases of up to JPY50 billion. I will now explain our progress against the business plan.

In the Machinery & Infrastructure segment, there was a gain on sale of the electric locomotive leasing business in Europe and good performance in the automotive business. In the Lifestyle segment a revaluation gain on previously held equity in Aim Services was recorded. These and other factors have led to these segments maintaining a high rate of progress against the business plan. In the Chemicals and Iron & Steel Products segments, the rate of progress was low due to the decrease in demand associated with the slowing of the global economy and the impact of the fall in prices. In the Energy segment, profit contribution from LNG trading and dividends will be weighted towards the second half and on a full-year basis we expect earnings to be above those set out in the business plan.

As I mentioned at the start of my presentation, we have revised up our full-year COCF forecast to JPY960 billion. Mineral & Metal Resources segment was revised up by JPY30 billion mainly due to an increase in dividends from associated companies. The Energy, Machinery & Infrastructure, and Lifestyle segments were each revised up by JPY10 billion. COCF for the company as a whole is now forecasted to be JPY90 billion higher compared to JPY870 billion in the business plan. We have also revised up our full-year profit forecast to JPY940 billion. Based on the progress in the first half, the revised forecast for Iron & Steel Products segment is lower than the business plan, whereas it is higher for the Machinery & Infrastructure, Energy, and Lifestyle segments.

COCF for the company as a whole was revised up by JPY60 billion compared to JPY880 billion in the business plan. In this section, I will discuss cash flow allocation for the first half. In the first half, we steadily made growth investments in line with the key strategic initiatives set out in the MTMP, and also had major asset sales. Cash-in for the period was JPY758 billion, comprising COCF of JPY475 billion and asset recycling of JPY283 billion. Out of the asset recycling carried out in the first half, in particular, we view the electric locomotive leasing business in Europe, MRCE, as a well-timed large-scale asset sale that will also contribute to ROIC improvement. Cash-out will be JPY771 billion, comprising investments and loans of JPY572 billion and shareholder returns of JPY199 billion.

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Q&A Session

The main investments and loans in the first half included growth investments such as the acquisition of shares in Nutrinova, which manufactures and sells functional food ingredients, Aim Services becoming a wholly-owned subsidiary, and completing the additional acquisition of shares in Relia. There was a business integration between Relia and KDDI Evolva and a new company known as Altius Link was formed on September 1. As I just mentioned, Mitsui is actively executing growth investments in the key strategic initiatives specified in the MTMP. The start of contribution to profit by these new projects is also progressing as planned. The projects shown on this slide in bold have started to contribute to profit. As you can see, most of the new projects that were scheduled to start contributing to profit in FY March 2024 have already been implemented.

Furthermore, for projects that are expected to start contributing to profit from FY March 2025 onwards, investment executions or investment policy decisions have also been proceeding as planned. In the second quarter, we announced investment in a shrimp farming business, IPSP, in Ecuador, and a final investment decision on an offshore wind power project in Taiwan. Next, I will explain the progress on enhancement of base profit as laid out in the MTMP. This slide shows the FY March 2023 profit, excluding the one-time factors and adjusted for commodity prices and exchange rates based on our FY March 2026 assumptions. Based on these assumptions, we will increase the base profit by JPY170 billion over the three years of MTMP. With regard to the enhancement of base profit from existing businesses, we aim to improve this by JPY110 billion over the three years of the MTMP.

Specific initiatives aimed at strengthening existing businesses are progressing mainly in mobility, healthcare and retail. As an example of enhancement of base profit through efficiency improvements and turning businesses around is the steady progress being made in improvement of operations in the coffee business that recorded a loss in the previous fiscal year. Furthermore, progress was also made in initiatives aimed at exiting of several loss-making businesses. As explained earlier, growth investments in new businesses are proceeding according to plan in each key strategic initiative. Based on current progress, we have already accounted for around half of the JPY60 billion contribution to profit from new businesses expected in FY March 2026.

Regarding our shareholder returns policy, as we were able to reconfirm the robustness in our cash flow we will raise the interim dividend by JPY10 to JPY85, raising the minimum full-year dividend by JPY20 to JPY170 throughout the period covered by the current MTMP. Furthermore, as part of our flexible shareholder returns, based on the progress made in asset recycling, we have decided to make additional share repurchases of up to JPY50 billion. We will continue to consider the enhancement of shareholder returns offering both stability and flexibility, with a view to sustainably increasing ROE. That completes my part of the presentation today. I will now hand over to General Manager of the Global Controller Division, Masao Kurihara, for details of performance in the first half.

Masao Kurihara: I am Masao Kurihara, General Manager of the Global Controller Division. I will now provide details of our operating results for the first half. First, I would explain the main changes in COCF by segment compared to the first half of the previous year. COCF for the first half was JPY475.1 billion, a year-on-year decrease of JPY136.4 billion. In Mineral & Metal Resources, COCF decreased by JPY91.7 billion to JPY177.8 billion mainly due to the decline in metallurgical coal and iron ore prices and the fall in dividends from associated companies and Vale. In Energy, although there was an absence of the valuation loss on derivatives that was recorded in LNG trading in the previous fiscal year, COCF decreased by JPY47.3 billion to JPY77.5 billion mainly due to the impact of oil production facility maintenance, as well as a drop in oil & gas prices and a decrease in LNG dividends.