Mitsui & Co., Ltd. (PNK:MITSY) Q3 2024 Earnings Call Transcript

Mitsui & Co., Ltd. (PNK:MITSY) Q3 2024 Earnings Call Transcript February 2, 2024

Mitsui & Co., Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Tetsuya Shigeta : Good afternoon, I’m Tetsuya Shigeta, CFO. Thank you for joining us today. I will begin with an overview of operating results for the First Nine Months and the Full Year Forecast. I will then hand over to Masao Kurihara, General Manager of the Global Controller Division, who will speak on results in more detail. I will provide a summary of operating results for the first nine months. During the first nine months, we were able to take advantage of earnings opportunities by improving the quality of our business portfolio, which globally spans a wide range of industries. As a result, cooperating cash flow or COCF was JPY769.1 billion and profit was JPY726.4 billion generating earnings outpacing the previous forecast announced at the first half of financial results, which were revised up from the forecast announced at the start of the fiscal year.

In light of the strong progress, we have revised up our full year forecast again. compared to the previous forecast, we have revised up our forecast for COCF. That forms a basis for shareholder returns by JPY40 billion to JPY1 trillion. Furthermore, although the timing of a large-scale asset sale is expected to be shifted to next fiscal year, we have revised up the forecast for profit by JPY10 billion to JPY950 billion due to the good performance of the mineral and metal resources, energy and mobility businesses. I will now explain a progress against the previous forecast. COCF progressed at the high rate due to the upside of the iron ore process in the mineral and metal resources segment, and an increase in dividends from associated companies in the machinery and infrastructure structure segment.

Furthermore, in the energy segment, our assessment is that progress is now steady due to LNG related business contributing to earnings in the second half. Meanwhile, segments impacted by demand decrease lower commodity prices and other factors associated with the slowing of the global economy had a relatively slower rate of progress against the previous forecast. We have revised up our full year forecast for COCF in FY March, 2024 to JPY1 trillion. In the minimum metal resources segment, we made an upward revision of JPY50 billion, mainly due to the rising iron ore prices and an increase in dividend income from [Indiscernible]. In the energy segment, we made an upward revision of JPY10 billion, mainly due to LNG trading and one-time profit.

In the machinery infrastructure segment, we made an upward revision of JPY20 billion, mainly due to an increase in dividend income from associated companies and a decrease in tax payments due to an anticipated shifting timing for the sale of the [Indiscernible] power generation business to next fiscal year. We have also revised up a full year profit forecast to JPY950 billion. In the minimum resources segment, we made an upward revision of JPY35 billion, mainly due to the rise in the iron ore prices and an increase in dividend income from [Valley]. In the energy segment, we made an upward revision of JPY20 billion, mainly due to LNG trading and one-time profit in the machinery and infrastructure segment. We anticipate the sale of the [Python] power generation business being shifted to next fiscal year, and we recorded impairment losses in the power generation and railway businesses.

However, automotive, industrial and construction machinery and the ships businesses drove performance linking the download revision to JPY15 billion. In this section, I will discuss cashflow allocation for the first nine months. Cashing for the period was JPY1,211 billion comprising COCF of JPY769 billion and asset recycling of JPY442 billion. There were numerous asset sales made in Q3, including the sale of shares of International Power Australia Holdings, which operates a power generation business and a power and gas retail business in Australia. The sale of shares in Thorne HealthTech, which operates a high functionality supplement and testing kit business, and the sale of our interest in the U.S. Kaikias Oil Field. Cash Act was JPY1,003 billion comprising investments and loans of JPY769 billion and returns to shareholders of JPY234 billion.

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Q&A Session

We will continue to execute carefully selected gross investments in line with the key strategic initiatives specified in the Medium-Term Management Plan or MTMP and the start of contribution to profit from new projects is progressing as planned. In Q3, partial operation of the large-scale renewable energy project in India started and Nutrinova, which manufactures and sells functional food ingredients also started to contribute to profit. Furthermore, we acquired 60% of shares in Commercial Mining Corporation, Peru, which sells and services machinery for open pit and underground mining. And this has started contributing to earnings. This year, it’ll merge with KMMP, which we have invested in since 1996, and will provide an even wider range of products and services to customers to support the stable operation of mining machinery and contribute to global corporate production.

Investment decisions and pipeline expansion have progressed smoothly in the past four months and are introduced a few major projects. In industry business solutions, in January, we invested in Continuum, which is a leading global quantum computing company and signed a distributorship agreement. We have already started studying specific joint projects as a technology with the potential to have a significant impact on the wide range of industrial sectors. We will consider its utilization in each business in the context of digital transformation and accelerate value offerings to customers and society. Furthermore, in wellness ecosystem creation, in November, we decided to invest in Wadi Poultry, which operates an integrated business in Egypt, encompassing broiler production and processing and processed food manufacturing, sales and the procurement of feed grain.

Demand for chicken is expected to continuously rise with increasing population and economic growth. It is also positioned as our focus area because it has the highest feed efficiency of all annual proteins, has a short breeding period and can be provided at a relatively low cost. We’ll continue to expand our pipeline and execute carefully selected growth investments in line with the key strategic initiatives established in the MTMP. I will explain about our shareholder returns policy. There are no changes to our previous explanation of the shareholder returns policy. We will maintain shareholder returns at around 37% of the three-year cumulative total of COCF, and a minimum full year dividend of JPY170 for the duration of the MTMP. Furthermore, the repurchase of up to JPY50 billion of shares announced last October was completed on January 31st and all shares acquired will be canceled on February 15th.

We’ll continue to consider the enhancement of shareholder returns, offering both stability and flexibility with a view to increasing our ROE. Now, I’ll explain the impact of Arctic LNG 2 project on our financial results. Last November, the operating company of Arctic LNG 2 project was sanctioned by the U.S. after having reassessed the investment loans and guarantee obligations taking into consideration this sanction, we have booked an additional provision of JPY13.6 billion, this includes JPY12.3 billion that impacts the income statement. As shown in the table on the page 12, balance after deducting the provision includes Mitsui guarantees of specific J-ARC liabilities undertaken for a 100% percent share of J-ARC in excess of Mitsui equity share and is a gross amount before deducting potential insurance claims.

We’re taking appropriate measures to protect our interest of asserting the rights and obligation to Mitsui under relevant agreements, we’ll comply with laws and regulations including sanctions imposed by the international community and will take appropriate measures in corporation with stakeholders, including the Japanese government. Has recently announced, Mitsui has revised the positioning of the POD and the executive committee regarding the Board of Directors following the ordinary general meeting of shareholders scheduled in June, 2034, the number of directors will be reduced from 15 to 12. The aim of this change is to establish a personnel composition that will enable the board to engage in deeper and more effective deliberations, while the board’s primary focus will remain on management oversight by the directors.

The number of external directors will remain unchanged at six. This will raise the percentage of external directors to 50%. We have also reviewed our executive structure with the purpose of allowing a more agile response to an increasingly complex business environment and surrounding risks and to ensure the steady realization of our management strategies. We have re-affirmed the role of the executive committee as a management leadership team. In addition, we will newly establish the position of general council, who will serve as a member of the executive committee from April, 2024 and execute management from a legal perspective. That completes my part of the presentation today. I will now hand over to Masao Kurihara, Global Controller for details of performance in the first nine months.

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 nine months. First, I will explain the main changes in COCF by segment compared to the previous period. COCF for the period was JPY769.1 billion a year-on-year decrease of JPY192.1 billion. In Mineral & Metal Resources COCF decreased by JPY44.2 billion to JPY311.3 billion mainly due to the decline in meteorological coal prices and the fall in dividend income from associated companies. In energy, although, we recorded again in LNG trading and again on asset recycling, COCF decrease by JPY107.8 billion to JPY168.1 billion, mainly due to a decrease in oil and gas prices as well as the impact of oil productive facility maintenance, a decrease in dividends from associated companies and recruiting of provisions related to Arctic LNG 2.

In Machinery & Infrastructure, COCF decreased by JPY11.6 million to JPY147.1 billion, mainly due to lower dividend income from associated companies and an increase in taxes associated with asset recycling. In chemicals, COCF decreased by JPY26.6 billion to JPY45.9 billion mainly due to falling prices of fertilizers, fertilizer raw materials and feed additives, and lower dividend income from associated companies. In iron and steel products, COCF decreased by JPY11.6 billion to JPY3.8 billion, mainly due to lower dividend income from associated companies. In lifestyle, COCF increased by JPY18.4 billion to JPY49.6 billion, mainly due to higher dividend income from associated companies and the swing back of the loss in coffee trading recorded in the same period of the previous fiscal year.