Mitsui & Co., Ltd. (PNK:MITSY) Q4 2025 Earnings Call Transcript

Mitsui & Co., Ltd. (PNK:MITSY) Q4 2025 Earnings Call Transcript May 2, 2025

Hideaki Konishi: We’ll now begin the briefing of the financial results of the fiscal year ending March 31, 2025, of Mitsui & Co., Ltd. Thank you very much for taking time out of your busy schedule to join us today. Today’s briefing will be a hybrid of on-site Zoom webinar and online presentation for institutional investors and analysts. Kenichi Hori President; and Masao Kurihara, General Manager of the Global Controller division will give a 20-minute presentation. After that, we’ll answer questions from the audience. Moreover, the presentation part will be live streamed for individual investors to be able to watch on a real-time basis. Please refrain from reproducing or diverting all part of these materials without permission.

Today’s meeting will be recorded, and will be available on demand on Mitsui’s website on a later date. I would now like to introduce today’s presenters Kenichi Hori, President and CEO; Tetsuya Shigeta, Senior Executive Managing Officer and CFO; Masao Kurihara, Managing Officer and General Manager of Global Controller division. Myself, Konishi of the Investor Relations department will be the moderator. Now I’d like to begin. President Hori, over to you, please.

Kenichi Hori: Hello. I am Kenichi Hori, President and Chief Executive Officer. Thank you for joining us today. First, I will speak on the management policy and the progress of the medium-term management plan 2026. I will then hand over to Masao Kurihara, General Manager of the Global Controller Division, who’ll speak on the details of the performance for FY March 2025 and the business plan for FY March 2026. Summarizing the first 2 years of the Medium-Term Management Plan, or MTMP, we are progressing ahead of schedule against the initial action plan. Entering the final year of the plan, we expect the different business environment compared to the past 2 years. We will continue to secure a wide range of management options and steer towards enhancing corporate value.

Firstly, in the enhancement of base profit, we have strengthened existing businesses through comprehensive middle game strategies. We also feel confident in the earnings contributions from newly acquired businesses, as we enhance profitability and expand business clusters through bolt-on investments in core businesses and adjacent areas. Additionally, despite changes in the business environment that have gone beyond initial projections, we have steadily progressed in enhancing base profit through earnings growth driven by our trading functions. Next, to improve the quality of the business portfolio, we have pushed ahead with asset and capital efficiency focused management utilizing ROIC, which was introduced in the previous MTMP and deepened the extent to which we carefully select project in the management level, diversification of the portfolio has advanced in terms of industry, time horizons and regions.

As a result of these efforts, strategic asset reconfiguration has progressed ahead of schedule. For example, the combination of the sale of the Paiton coal-fired power plant and the start-up of all units of the Thai gas-fired power plant is an example of strategic asset reconfiguration in the power generation portfolio. We have made several significant achievements, including investments in projects contributing to near-term earnings such as in mobility and protein and the building of a long-term earnings base through iron ore and LNG projects together with reliable partners. We have also executed capital allocation, utilizing the strength of our balance sheet. Mitsui maintains a balance sheet with ample reserve based on strong recurring cash generation capability and a solid financial foundation.

Q&A Session

We have allocated significant capital investments for growth, including the Rhodes Ridge iron ore project announced in February this year, and also replenished capital to the management allocation from the balance sheet. We will continue to execute optimal capital allocation. Here are the major projects executed in the first 2 years of the current MTMP, leveraging expertise and cross-industry functions built up over many years, Mitsui has been selected as a partner by leading companies across various industries and regions, and we have been able to acquire new business opportunities across the globe. Examples of collaboration with trusted partners based on expertise gained over many years include the Ruwais LNG and the Rhodes Ridge iron ore project.

In addition, an example, Mitsui’s unique feature of low barriers between different segments is a Blue Point project, a low-carbon ammonia production and sales business in the U.S. jointly pursued by the Chemicals and Energy segments. Next, I will speak on the progress of the key strategic initiatives in the MTMP and the important actions for FY March 2026. In Industrial Business Solutions, we have decided to invest in the Rhodes Ridge iron ore project, which I introduced earlier as a project to further strengthen the long-term earnings base, we have also invested in businesses contributing to near-term earnings such as the U.S. truck auction business. In FY March 2026, we will continue to strengthen collaboration with industries and work to grow our earnings generation.

Furthermore, we will capture new earnings opportunities by leveraging our trading functions in responding to changes in the supply chain. In global energy transition, we have made progress in investment in projects such as Ruwais LNG and low-carbon ammonia. In FY March 2026, we expect further strengthening of our earnings base across various time horizons through the steady launch of projects such as Waitsia gas business in Australia and offshore wind power in Taiwan. In wellness ecosystem creation, we have invested in protein and nutrition businesses contributing to near-term earnings. We have also made progress in capturing growth in the Asian market through the health care business. In FY March 2026, we will further enhance the earnings power of the acquired protein and nutrition businesses and optimize food trading.

We have recently conducted a reassessment of the 5 key material issues we identified as a materiality, and announced the results today. This time, we have reviewed it from the perspective of double materiality and added a new item, cultivate a society that respects human rights. Given the heightened interest regarding the impact of the U.S. tariffs and policy changes, I will speak on our operations in the U.S. Profit from our business in the Americas was approximately JPY 300 billion in FY March 2025. Within that, our U.S. business can be categorized into 3 business firms: domestic operations, exports, imports and sales. Domestic operations have the largest profit share, and we expect this to have a relatively smaller direct impact from tariffs.

However, tariff policies have a significant impact on the macroeconomic environment and will increase uncertainty. Therefore, we will be increasingly alert to changes in the business environment, and we’ll be taking defensive measures as needed. We see changes in the business environment and supply chain as an opportunity to leverage our global network and demonstrate our enhanced trading capabilities. In FY March 2026, we will continue to work towards improving ROE. Considering changes in the business environment, we will further strengthen risk management and enhance downside resilience. We will execute asset reconfiguration being mindful of capital efficiency and with rigor investment discipline. At the same time, we will also look at new opportunities that can be found in such a business environment.

In our cash flow allocation framework, the management allocation is a source of capital to be strategically allocated to investments for growth and shareholder returns from cash earned through operations. In an uncertain business environment, we believe the importance of capital allocation becomes even greater. Therefore, we have maintained sufficient management allocation at the beginning of this fiscal year. We will keep our management options wide open and flexibly respond to various scenarios while achieving optimal capital allocation that balances investments and shareholder returns. Here are the results of FY March 2025 and the business plan for FY March 2026. Core operating cash flow or COCF has reached the JPY 1 trillion level for the fourth consecutive fiscal year.

Considering the solid cash flow, we plan to increase the dividend per share by JPY 15 for fiscal year March 2026. On the other hand, in formulating the quantitative plan for FY March 2026, we have reflected the recent changes in the business environment. While enhancing of base profit is steadily progressing, we have incorporated a certain degree of conservatism and set COCF at JPY 820 billion and profit at JPY 770 billion. We have taken into consideration the ongoing normalization of margins in the North American automotive business, and the time required to respond to changes in the business environment such as inflation, interest rates and exchange rates. I will speak on the cash flow allocation results for FY March 2025. Cash inflows amounted to JPY 1,629 billion, combining COCF or JPY 1,028 billion and asset recycling of JPY 601 billion, including multiple large-scale projects.

In asset recycling, JPY 50 billion was obtained from the sale of our shareholdings in 23 listed companies executed in FY March 2025. Cash outflows amounted to JPY 1,457 billion, comprising investments and loans of JPY 765 billion and shareholder returns of JPY 692 billion. Next, I will speak on the MTMP 3-year cumulative cash flow allocation forecast. We have revised down our COCF due to the revision of our plan for FY March 2026. But at the same time, revised up asset recycling compared to the previously announced figures, leading to total cash inflows of JPY 4,370 billion. In addition to the investment decision in Rhodes Ridge, we have made progress in other carefully selected investments and are newly allocating JPY 370 billion to investments and JPY 40 billion to shareholder returns from the management allocation.

At the time of disclosure of Rhodes Ridge in February this year, we announced that we would replenish JPY 400 billion to the management allocation from the balance sheet and significantly changing business environment, we’ll maintain sufficient management allocation of JPY 400 billion to keep our management options wide open. We’ll continue to balance capital allocation between investments for growth and shareholder returns. Next, I will speak on the progress in enhancing base profit. Adjusting commodity prices and exchange rates to the assumptions of FY March 2026 at the time of MTMP announcement. And excluding onetime factors, we’ll expand base profit by JPY 170 billion over 3 years of the MTMP. Against this target, we have progress to an increase of JPY 120 billion as of the end of FY March 2025.

While some businesses in the turnarounds and new investments are struggling due to changes in the business environment, the strengthening of existing businesses and exit from loss-making businesses are progressing smoothly. And overall, we are on track. We’ll continue to persistently push ahead with each measure to achieve the target in the final year of the MTMP. Earnings contribution from new projects inside and out of Japan are progressing smoothly. We are advancing the selection and timely execution of investments as well as enhancement of profitability after asset acquisition ahead of schedule, while responding to changes in the business environment. Including the 3 projects highlighted at the beginning of this presentation, I am confident that our investments for growth, which will exceed JPY 2.3 trillion during the MTMP period will dramatically fortify our earnings base and raise earnings levels significantly from FY March 2027 onwards.

Finally, I will speak on the shareholder returns policy. In FY March 2025, COCF reached JPY 1 trillion level for the fourth consecutive year, highlighting our strong cash flow. Based on this, we will raise the ratio of shareholder returns as a percentage of COCF forecast for the 3 years of the current MTMP to the 50% level. For FY March 2026, we will increase the annual dividend per share from the current JPY 100 to JPY 115, an increase of JPY 15. The interim dividend is set at JPY 55 and the year-end dividend at JPY 60, reflecting our mindset of continuously strengthening shareholder returns based on our progressive dividend policy. In addition to the track record of cash flow, our company’s strength lies in the clear path to significantly growing the earnings base through the significant investment projects and middle game achievements highlighted today.

Based on this, our policy is maintained the progressive dividend policy beyond the current MTMP. Accordingly, once the current MTMP is concluded, we consider JPY 120 as a new starting line for full year dividends. We have also continued to make share repurchases in an agile manner and have canceled all those sales in order to increase the capital efficiency per share in a constant manner. Our policy remains unchanged. So we’ll continue to study the right opportunity for an agile share repurchase, including its timing. Considering the current business environment, we have adopted a conservative approach for this fiscal year’s plan. However, we have been consistently building up a track record of achieving COCF and profit of around JPY 1 trillion.

Additionally, over the past 2 years of the current MTMP, we have balanced investments in high-quality projects that expand our earnings base with enhanced shareholder returns, thereby managing the company to realize our commitment of maintaining high ROE. Through these efforts, we are establishing a business foundation, which will be capable of consistently generating profit levels well exceeding JPY 1 trillion toward 2030. In terms of U.S. dollars, the global benchmark currency, our image would be a portfolio capable of generating COCF in the order of USD 10 billion. Against the uncertainty of the global economy, we’ll leverage the high-quality business portfolio we have built over many years, capitalized by diversification of industries, time horizons and regions.

In key regions, such as North America, South America, Asia, including Japan and Australia, we’ll refine both domestic operations in each region and business involving the global supply of highly competitive products. We appreciate your trust and remain committed to delivering our — on our company’s long-term growth. That concludes my part of the presentation. I will now hand over to the General Manager of the Global Controller division, Masao Kurihara, for details of financial results of FY March 2025 and the FY March 2026 business plan.

Masao Kurihara: I am Masao Kurihara, General Manager of the Global Controller division. Now I will explain the details of the financial results for FY March 2025 and FY March 2025 business plan — sorry, FY March 2026 business plan. First, I will speak on the year-on-year change in COCF by segments. COCF of FY March 2025 increased by JPY 31.7 billion year-on-year to JPY 1,027.5 billion. In Mineral & Metal Resources, COCF decreased by JPY 51.2 billion to JPY 357.9 billion, mainly due to the decline in iron ore and metallurgical coal prices. In energy, COCF increased by JPY 115.6 billion to JPY 363.4 billion, mainly due to the increase in LNG dividends. In Machinery & Infrastructure, COCF decreased by JPY 31.7 billion to JPY 145.2 billion, mainly due to a consolidated subsidiary becoming an equity method investee as well as higher taxes and lower dividends due to asset sales.

In Chemicals, COCF increased by JPY 27.2 billion to JPY 90.6 billion, mainly due to the strong performance in the methanol business, FVTPL, and higher profit from trading. In Iron & Steel Products, COCF decreased by JPY 2.5 billion to JPY 6 billion. In Lifestyle, COCF decreased by JPY 22.1 billion to JPY 18.1 billion, mainly due to lower dividends from equity method investees and lower profit from coffee trading. In Innovation and Corporate Development, COCF decreased by JPY 18.4 billion to JPY 27 billion, mainly due to the increase in taxes associated with asset sales. In Others, Adjustments and Eliminations, COCF increased by JPY 14.8 billion to JPY 19.3 billion, mainly due to expenses, interest, taxes, et cetera, which are not allocated to business segments.

Next, I will speak on the year-on-year change in profit by segment for FY March 2025. Profit decreased by JPY 163.4 billion year-on-year to JPY 900.3 billion. In Mineral & Metal Resources, profit decreased by JPY 49.7 billion to JPY 285.4 billion, mainly due to the decline in iron ore and metallurgical coal prices. In Energy, profit decreased by JPY 108.2 billion to JPY 173.5 billion, mainly due to the absence of onetime profit in the previous fiscal year and the decline in profit in LNG trading. In Machinery & Infrastructure, profit decreased by JPY 15.8 billion to JPY 232.9 billion, mainly due to the decline in profit in automotives and lower profit due to asset sales. In Chemicals, profit increased by JPY 36.7 billion to JPY 75.9 billion, mainly due to methanol business, FVTPL gains from asset sales and higher profit from trading.

In Iron & Steel Products, profit increased by JPY 2 billion to JPY 13.2 billion. In Lifestyle, profit decreased by JPY 40.4 billion to JPY 53.7 billion, mainly due to the absence of a valuation gain on Aim services reported in the previous fiscal year and lower profit from coffee trading. In Innovation and Corporate Development, profit increased by JPY 33.5 billion to JPY 87.3 billion, mainly due to the sale of rental property in Japan. In Others, Adjustments and Eliminations, profit decreased by JPY 21.5 billion to a loss of JPY 21.6 billion, mainly due to an amendment to the retirement benefit system. Here, we compare profit for FY March 2025 with the previous fiscal year and summarize the changes by factor. Base profit decreased by JPY 54 billion.

There was an increase in profit due to contribution of earnings from new businesses, methanol business and shipping-related subsidiaries, while there was a swing back from additional dividends from Vale in the previous fiscal year, a decline in coffee trading profit and a decrease in profit from Penske Truck Leasing. Resources cost volume remained flat year-on-year with an increase in volume in crude oil, gas and iron ore which were offset by the increase in costs in iron ore. Commodity prices and ForEx decreased by JPY 25 billion. Commodity prices decreased by JPY 65 billion, mainly due to the decline in iron ore with a JPY 43 billion impact and metallurgical coal with JPY 22 billion, ForEx increased by JPY 40 billion, mainly due to the depreciation of the yen.

Asset recycling decreased by JPY 16 billion with JPY 147 billion from the sale of asset including Paiton and rental properties, offset by the absence of JPY 163 billion recorded in the previous fiscal year. Valuation gains and losses and onetime factors decreased by JPY 68 billion, mainly due to the amendment to retirement benefit system and the impairment of mainstream. I will speak on the balance sheet as at the end of FY March 2025. Compared to the end of March 2024, net interest-bearing debt decreased by JPY 0.1 trillion to JPY 3.2 trillion. Shareholder equity was JPY 7.5 trillion, flat year-on-year. As a result, the net D/E ratio fell to 0.44x. This slide contains the segment-wise details of COCF for the FY March 2026, business plan. The plan is JPY 820 billion, a decrease of JPY 207.5 billion from the previous fiscal year.

This is mainly due to a decline in iron ore and metallurgical prices, a decrease in dividends from equity method investees, an increase in interest expense associated with the acquisition of Rhodes Ridge in Mineral & Metal Resources and a decrease in LNG dividends in energy. The segment-wise details of profit for FY March 2026 business plan is shown on this slide. The business plan for profit is JPY 770 billion, a decrease of JPY 130.3 billion from the previous fiscal year, mainly due to a decline in iron ore and metallurgical coal prices in mineral and metal resources, an increase in interest expense associated with the acquisition of Rhodes Ridge, a decline in LNG dividends and crude oil prices in energy and the absence of gains from asset sales recorded in the previous fiscal year in Machinery and Infrastructure and Innovation and Corporate Development.

Page 26 compares the plan for FY March 2026, with the actual results of FY March 2025, showing the changes by element. Base profit, we expect an increase in profit of JPY 24 billion. We expect lower LNG dividends, increased interest expenses associated with the acquisition of Rhodes Ridge and lower profit from automotives, while we expect higher profit from food trading and protein, affiliated companies, such as those in Innovation and Corporate Development and Iron & Steel Products segment and from chemical trading. Resources cost and volume, we expect a decrease in profit of JPY 50 billion due to an increase in operating costs in upstream energy and iron ore businesses and a decline in volume in upstream energy and copper businesses. Commodity prices and ForEx, we expect a decrease in profit of JPY 86 billion due to a decline in iron ore prices and metallurgical coal prices, and an appreciation of the yen.

Asset recycling, we expect a decrease in profit of JPY 98 billion due to absence of asset recycling gains of JPY 147 billion, recorded in the previous fiscal year, although we anticipate asset sales of JPY 49 billion from the multiple projects. Valuation gains and assets and onetime factors, we expect an increase in profit of JPY 80 billion, including JPY 21 billion from valuation gains centered around ITC Rubis and R-Pharm, an absence of JPY 59 billion of losses from the previous year. That concludes my presentation.

End of Q&A: