Itochu Corp

I am Ishii, COO of Itochu Corporation. Thank you very much for joining us today. Now, we would like to explain FIE 2022 Business Results Summary and FIE 2023 Management Plan. Please refer to the PowerPoint presentation on the screen. First, page two. This is the summary of financial results for FIE22. Consolidated net profit significantly exceeded the previous record high and reached 820.3 billion yen, about the double of that of last year. Historically good results. After excluding the extraordinary gains and losses, core profit was also up 1.5 times from the previous year and reached about 690 billion yen, greatly renewing the record high number. We exceeded initial forecast in all segments, recording higher core profits In five segments, including machinery, metals, minerals, energy and chemicals, general products and realty, and ICT and financial business, highest profits were recorded. As resource prices soared to unprecedented levels and supply chains disrupted due to COVID-19, We benefited from expanding trade margins in wide-ranging areas. However, we believe that our results demonstrate that we are steadily strengthening our earnings base in all segments without relying on specific earnings. Please turn to page 9. We have steadily enhanced cash flow and various financial structures and achieved the highest and best results. In the first year of the Brand New Deal 23, our results substantially exceeded the targets, a major quantitative achievement. Please turn to page 10. This is a review of qualitative targets. As for the market-oriented measures, At Family Mart and Nippon Access, we introduced automated ordering system utilizing DX or digital transformation and also optimized delivery routes. At Family Mart, new initiatives such as media business using the large-scale synergies and unmanned payment stores were introduced. Also, we newly invested in Under Armour, Hitachi Construction Machinery and Nishimatsu Construction and others, which could become the core for further growth. We would enhance the collaboration with them to seek synergies to broaden our revenue base. In enhancing contribution to and engagement with SDGs, we exited from two core businesses and significantly reduced GHG emissions And also, we are working on the commercialization of environmentally friendly plastics and recycled fiber to reduce GHG emissions. In April last year, we established Itochu SDG Studio to dispatch information about the SDG initiatives. In addition to our own efforts, by supporting the SDG-related initiatives in the society, we would like to contribute to the sustainable society. Next is page 11 and 12. This shows the overview of FIE23 plan. Consolidated net profit target is 700 billion yen. This is lower than the year before, partly due to the absence of one-time gains on exits based on the asset replacement. But as you see on page 12, solid growth of core profit is expected mainly in non-resource areas which are less susceptible to market conditions. As you see on page 11, in addition to 30 billion buffers, the Russian-Ukraine-related and COVID-19-related impacts are factored in to some extent. And as you see on page 14, exchange rate and resource price assumptions reset at the conservative levels. Therefore, we believe we are well on track to achieve the targets. Please turn to page 13. Concerning shareholders' return for this fiscal year, we would increase the dividend by 20 yen per share from 110 yen in FY22, increasing the minimum dividend by 10 yen from 120 yen which had been announced before to 130 yen per share. We will continue the progressive dividend policy in FIE24 and set the minimum at 130 yen plus alpha and achieve 30% payout ratio in FIE24. and we would actively and continuously execute share buybacks as appropriate in consideration of the cash allocation situation. We will continue to promote the shareholder return, which would exceed the expectation of the market. We expect the current fiscal year to be another year with many variable factors. In retail sector where we are strong, consumption is expected to resume as COVID-19 spread abates and we expect the recovery of the demand of inbound tourists as yen depreciates. Also, we anticipate continued brisk digital investments by companies in response to new society and expect further growth from utilization of renewable energy PPA and power storage. As for the collaboration with the Hitachi Construction Machinery and Nishimatsu Construction, we would expand our business areas and also there will be a development of the DX businesses working with ICT and financial business company and also there will be a proposal of the distributed EMS including mobility. We will create new and diverse profits unique to Itochu. As we grasp the businesses and projects which can be the core of each company, we will try to foster them. For future economic activities, especially shift to new supply chain, In consideration for the Economic Alliance and national security, the current geopolitical disruptions could bring opportunities for us to enter into new businesses. We will continue to utilize our strength and develop earnings unique to Itochu. We hope to have your continued high evaluation for us. That's all. I'd like to hand the microphone to our CFO, Mr. Hachimura. Thank you. This is Hachimura speaking. I'd like to give you the details of FIE22 business results and FIE2023 management plan. Now, starting with the financial results, turning to page 2. Consolidated net profit was 820.3 billion yen. This is more than two times the results of the previous year. In all eight segments, profits increased. In machinery, metals and minerals, energy and chemicals, general products and realty, and ICT financial business, in five segments, the record high numbers were achieved. 130 billion yen, the extraordinary gains and losses were booked. Excluding that, the core profit was 690 billion yen, which was also a record high. In E20, we booked 485.5 billion yen. ratio of the group companies reporting profit exceeded 90% at 90.9%, so one-fourth of the 274 companies had the highest profit. Only less than 60% of them have less than 2 billion yen of profit. So those well-diversified, small-medium-sized businesses have supported the management of the company despite the resource price bubble. Going to page 3, profits increase in all segments, but in terms of the size of contribution, the number one was metals and minerals, general products and realty, ICT and financial business, energy and chemicals, machinery, food, the eighth, and textile. I'm not going to go into the details of the comments, but in terms of the equity pick-up, As I said, the medium-sized businesses supported overall management. In terms of the size of the contribution, the highest was Minerals and Energy Australia, which was up by 68.1 billion yen year-on-year, recording 158.7 billion yen. Second was CITIC, 96.4 billion yen. And next was Family Mart, 44.7 billion yen. Marubeni Tochu Steel, For the first time, the record high number was achieved at 31.3 billion yen. North American construction material, 22.6 billion yen. CDC, 20.7 billion yen. Itochu Fiber Limited, this is a public business in Europe, 17.8 billion. And Nippon Access, 17.1 billion. Mobile phone related, top 10 companies account for about 50% of the order contribution. Now, lower than 10 billion yen, the major improvements were observed at Yanase, 5.1 billion yen improvement to 9.7 billion. The business in Azerbaijan improved by 7.1 billion yen to 8.9 billion yen, though recovery from the deficit last year and achieved 8.4 billion yen. iEnvironment, the environment business in Europe, improved 6.9 billion yen to 7.5 billion yen. The bottom left shows the distribution between the non-resource and resource. Non-resource was 610.3 billion yen and resource was 221.6 billion yen, so record high numbers for both of them. the highest record of the resource business profit was achieved, but the non-resource profit of 610.3 billion yen is the record high, and also the percentage of the non-resource was same as last year at 73%. Page 4 shows the extraordinary gains and losses, 130 billion, which was the record high. In Q4, Net 1 billion extraordinary gains were booked. The major ones include Japan-Brazil paper pulp, Pei-D, Taiwan Family Mart, Ito-Chu Co-Americas. Those have been booked already up to Q3. Page 5. You see the asterisks representing record highs. Core operating cash flow, 790 billion yen. There was a very strong operating revenue. And this 800 billion yen level was lower than FIE 21, 900 billion yen level. But with the active operating activities, the working capital increased. So as a result, this looks lower than before. But in real terms, this was the record high number. The next page, shareholders' equity. For the first time, it exceeded 4 trillion yen, reached 4.2 trillion yen. In terms of the net interest bearing debt, it was 2 trillion 283 billion yen. In terms of gross, it was 290 billion yen. One third of our debt is denominated in foreign currency. So recently, due to the higher interest rate affecting the dollar level and in consideration for the future funding, we have appropriately controlled the debt level. As for the ratio of the shareholders' equity to total assets, it was 34.6% and net DER 0.54 times. So we have been promoting the improvement of the financial structure. ROE was better than what we promised. With the high return, it was higher than 21% at 21.8%. So what we are aiming for is, as you can see in the FIE24 targets, the net DER of 0.7 to 0.8 and ROE of 13 to 16 percent, which are much better than the competitors. So in consideration for those numbers, our numbers were very strong. Now, on page 25, we talk about the investments. The total major investments were 297 billion yen. In FY 2017, we had 215 billion yen. And so this was another low level. In FY 2016, we had major investments and also in FY 2021. And we have been promoting the asset replacement. And we plan to exit the Japan-Brazil paper and pulp and Taiwan family mart in FIE21, but it was delayed to FIE22. That was a cash in. And the Hitachi Construction Machinery and Gaitame.com, the cash out is now deferred to the following year. So as a result, the cash in was 47 billion yen, as you see at the bottom. And also, there are a lot of interest to our exposure to Russia. We have one additional page of information. In Sakharin, we have the business there and we have reviewed the fair value and in comparison to the end of March there was a decrease of 14.8 billion yen. This is based on other comprehensive income or OCI. The major business in Russia is Saharin-1 and Japan's South Saka Oil. And also Suzuki Motor Russia. This is a Suzuki business in Russia. And also in Ukraine, we have Mazda Suzuki, the car import and sales business. So those are the exposures that we have in Q4. the Russian invasion into Ukraine started. And we have been reviewing the fair value evaluation and we have been accelerating collection of receivables. And As for the investment into Sakharin, we regularly review our fair value evaluation. So the question of Russian sovereign credit rating, we have changed this to speculative. So by changing that rating, we have increased the country risk premium. As a result, net present value was lowered. This was the major reason. As for the factors, we look at the foreign exchange, oil prices and dividend and so forth. And the biggest impact came from the lower credit rating. So about 30 billion yen lost before tax in OCI was booked in Q4. And the decrease of earnings in subsidiaries and associates and potential extraordinary losses have been factored into the FIE23 plan based on the conservative assumptions. As for Ukraine, it's 2.6 billion yen unchanged. Now, let me talk about our plan for FIE23, page 11. So consolidated net profit of 700 billion yen include the buffer of 30 billion yen and also 20 billion yen extraordinary gains. This is 15% lower year on year. But if you turn to the next page, based on the core profit, we have a breakdown here. Last year, there was extraordinary gains and losses of 130 billion yen, which was the record high. So as a result, the core profit was 690 billion yen. So 20 billion yen higher, or 3% higher, 710 billion yen, is our conservative plan for FY23. So here we have separation into the non-resource and resource. It is said that the high resource prices are going to stay at the high level, but this resource business is not going to be the driver, but rather the non-resource businesses will drive our core profit, especially in the non-resource, the food, aid, and construction, and the financial business area. Those defensive sectors we expect a strong growth from those businesses. Going to page 35. Now, our management plan. We are in the second year of the brand new deal 23. So we have been trying to increase the profit level by 100 billion yen and this brand new deal 23. We had the tailwind due to the unexpected high resource prices. Our after-tax profit increased as a result. But our aim is to try to maintain the profit at or above 600 billion yen in a stable manner. And last year we achieved 690 billion and we are targeting 710 billion yen. So toward FIE24, we would like to make sure that we can maintain about 600 billion and at the same time improve the shareholder return. Now going back again to page 11, if you look at each segment, This is based on the after-tax profit. So the changes are shown by segment. And if I may comment briefly, in textile, this is positive. This is because of the recovery in major businesses. In sports area, There is a collaboration with Reebok, Under Armour, and Descent is doing well. So sports-related businesses are expanding, and also e-commerce is being utilized to expand our profit. So steadily, we would see and expect a recovery. As for machinery... So it's minus 8 billion yen, including impact from Russia. We have a conservative outlook here. But from this fiscal year, our business with Hitachi Construction Machinery will start. And as for others, we believe that we will be able to maintain those businesses at a good level. So flat core profit level is expected for machinery. For metals and minerals, we have a conservative assumption for the resource prices. So we expected a minus number here. Last year, the 60 billion yen profit was achieved at the Marubeni Ito Steel. That would level off. And energy and chemicals, Here it says minus 4.6 bdm. This is almost flat. The oil prices are increasing and our transaction volume of the oil is lowering and there is an impact from Russia. And also the overheated trading in chemicals. is being normalized. So almost flat is expected for energy and chemicals. As for food, steady increase is expected. So FYE22, in relation to the pork market, The Prima, Meatpacker, Highlife, CPP were impacted, negative impact, but the prices recovered. And so the basic businesses are expected to grow. So the food core profit is likely to grow. As for general products and realty, there are many small segments. So there is a mixture. But the major one is, first of all, pulp market. We have conservative view there. And last year there was extraordinary gains on sales. So excluding that, North American construction material business was very strong. And the profit level will normalize for that. But at the same time, the tire business in Europe continues to be strong. So that's positive. And construction is also recovering. So it's a mixture of the positives and negatives. So it's almost flat in terms of core profit. ICT and financial business. There was a contribution of the profit from PayD last year. So excluding that, our core profit in this segment is increasing steadily. Comments for each segment are included here from pages 16 to 24. But the major operating companies plan to have higher profits. So we have a high expectation. The eighth, there was an extraordinary gains and losses in relation to Family Mart. So the core profit of the eighth, or rather the core profit of the family mart, will increase by making the stores and products more attractive. Others, adjustments and eliminations include CITIC and CPP. Both of them, the profits are expected to grow. They are not the major ones, but higher profits. So that's the explanation on each segment. going to page 14, our assumptions. First, exchange rate. The average is 120 yen to the dollar. And as for the interest rate, LIBOR, 2.5%, high level, and the crude oil brand, $90 per barrel. And the iron ore, We have a more conservative view from the latest numbers. So we have conservative assumptions overall. Of course, as you know, for this fiscal year, the risks, including the interest rate and foreign exchange rate and slowing down economies and geopolitical situations. In each segment, we need to factor in various risks, and we have based our forecast on the conservative assumptions. And as I said, it includes the buffer of 30 billion yen. The oil prices are higher, and as a result, electricity prices are up, and raw material prices are also up. So whether we can reflect them to the higher sales prices, each operating company have factored them in, and this is the plan based on all of those operating companies' forecast. Now going to shareholders' return. What I would like to say here is that in brand new deal 2023, we will continue the progressive dividend policy. So making sure that we have incremental dividend increase. And based on after-tax profit, we are looking into the dividend. So based on the net profit of 700 billion yen, we would, of course, increase the dividend payment as promised. So minimum payment we announced originally to 120 yen, but now it's changed to 130 yen per share. And as for last year, we were committed to 110 yen per share. And in addition, there was a share buyback of 60 billion yen. And in terms of the payout ratio, last year it was 27.1%. And our target is to reach 30% in FIE24. And we would like to look at the financial structure and improve our shareholder return and make sure to increase the dividend every year. So for this fiscal year, in terms of the payout ratio, it is 27.3%. So that would be the minimum level. And we would also execute the share buybacks in an active manner. And if you look at the results so far, since FIE 2017, we have started to buy back our shares. So looking at the cash level situation and also the timing of the dividend payment, we would like to make the overall decisions. As I mentioned under the investments, there have been some investment items whose cash out timing was delayed or carried over. And as this is the beginning of the fiscal year, there are some major investment projects planned. So look at the position, the cash position, at the end of each term. And if you look at the minimum payout ratio, now this year's payout ratio of 27.3% is the minimum level. So I think that For FIE24, 30%. And if we combine that with the share buyback, we can expect that to be the lowest minimum level. And that concludes my presentation. Thank you for your attention.