Itochu Corp

Hello, I am Hachimura, CFO of Itochu Corporation. Thank you very much for joining us today. I'd like to now present the business results of the first quarter fiscal year ending 2024. I'll be using the PowerPoint material that you have in front of you. On page three, we are showing the summary of financial results. There are three major points. First is that the net profit reached 213.2 billion yen. Although we do not disclose the quarterly budget, but this is higher than Q1 budget. We assume the natural resource prices to decline and compared to the last year. Net profit was down by 17.4 billion yen or 7.5% year-on-year. So while the natural resource prices are declining, we showed that we are resistant to those changes and achieved very strong and stable performance. The second point is that the cash flow has been very steady. Operating cash flow was third highest 214 billion yen. I will talk about this later, but the net investment stayed at 51 billion yen. And two days ago, we announced the delisting of CTC, and compared with the previous year, we have had double the number of investment projects at the company level. Some of them were approved and some of them were rejected. So we have taken those initiatives in Q1. Point three, as we announced at 1 p.m. today, as we committed at the beginning of the fiscal year, we decided to execute 25 billion yen additional share buyback. achieving 33% or higher total payout ratio. So this will be started next week and continue by the end of September. So those are the three key points. On page three, the core profit, as you can see, was 190 billion yen. And extraordinary gains and losses are shown on page six. The total in Q1 was 23 billion yen. In energy and chemicals, it was 18.5 billion yen. This includes the revaluation gain on a lithium-ion battery company called 24M in North America. And this was higher than our expectations. And also gain on the sale of the fixed assets in Itochu NX, which is the solar panel related business, was about 2 billion yen. In food, as Fuji Oil announced, there was 4.5 billion yen gain on the sale of fixed assets in a North American oils and fats company. So the total external gain was 23 billion yen. At the beginning of the year, we mentioned the budget of minus 20 billion yen, which includes 50 billion yen buffer. So that means that about the 30 billion yen per year in profit. So 24M gain was higher than what we expected. And from now on, we do not expect any major extraordinary gains. Now going to page 5, extraordinary gains and losses when we exclude them. The core profit, as you can see at the top part, last year it was approximately 211 billion yen, and it came down by 20.9 billion yen, and this year it was 190 billion yen in core profit. And most of that is because of the prices of the natural resources. If you look at the breakdown with the higher U.S. dollar interest rate, the interest rate impact was 13 billion yen in total. And FX, the yen has weakened, and so the positive impact on net profit was 7 billion yen from FX. Natural resource prices, the impact was 17.5 billion yen. So if we calculate the net number, it is 2.5 billion yen. And if you look at the lower part, the non-resource and resource, it was 12 billion yen positive in net, in non-resource, and minus 7 billion yen in resource. As for the ratio between the non-resource and resource, about 75% is non-resource. So the profit structure shows that the majority is from non-resource. As you can see, the breakdown in machinery and the aid, we mark the highest profit, and I will talk about each segment later. And general product and realty shows minus 10.5 billion. The pulp business and North American construction materials business made a slow start, so this led to the negative number. The next page shows the cash flow. Cash flows from operating activities was net cash inflow of 214 billion yen. This is due to the stable performance in operating revenues in general products and realty and the eight companies. I said that general products and realty is weaker, but there has been the improvement of the working capital and some initiatives have been taken. for the cash-in, and there was also a gain on the sale of the real estate. As for the eight companies, the family mart business, we have seen the improvement of the prices, and the business performance has been strong. And also, there were dividends received from the equity method investment in metals and minerals company, Marubeni Tochu Steel. Now cash flows from investing activities and the net investment cash flow was the cash out of 51 billion yen. It appears a little low, but if you go to page 21... It shows the breakdown of investments. So the total of major new investments were 114 billion yen. Exit was 63 billion yen. Net investment amount was 51 billion yen. There are no details, but about a little less than 60% was capex, and a little more than 40% was new investments. Among those, the major ones include the coking coal-related companies' investments, Oriental Shiraishi, and additional investment in Descent. Also, in EXIT, I mentioned extraordinary gains and losses. The NX, solar-related sale, was included. So out of 63 billion, about one-third, or a little more than one-third, is related to this. So this exit number appears probably a little low. But as I said, in Q1, we have a lot of cash outs. Some of the investment decisions are not reflected on the performance numbers. And this has led to the decision to delist the CTC. FIE 2024 is the last year of medium-term management plans. There are various capital policies that we take. Now, going back to page 8, which shows the financial position, we have accumulated the profits steadily, and with a weaker yen, the total assets reached 13.6 trillion yen. Net interest-bearing debt was a little less than 2.5 trillion yen. Total shareholders' equity was 5.1 trillion yen, above 5 trillion yen for the first time. Ratio of shareholders' equity to total asset was 37.5%, and net DER was 0.49 times. The numbers with us risks are record highs. I mentioned that the Forex impact was 7 billion yen after tax. The FX impact on balance sheet, Well, about 70% of the 7 billion is in metals and minerals. Impact on the total assets was 376 billion yen, and the impact on the total shareholder's equity was positive impact of 178 billion yen. Moving on to page 9. shareholder's returns policy as we promised. At the beginning of the fiscal year, we achieved higher than the total payout ratio of 30% or higher and 160 yen per share dividend and also decided to execute 25 billion yen share buybacks. and announced this. We will start buying back on Monday next week, and we plan to complete this by the end of September. Next page shows the assumptions. This is for your reference. Now going back to the page 4, which shows the segment performance. As for the details of each segment, The pages 12 to 20 shows the details, and they are for your reference. Now, page 4 is a busy slide. It shows the year-on-year comparison as well as the progress and also extraordinary gains and losses. If you look at the numbers... In terms of the size of net profit, metals and minerals, energy and chemical, machinery, food, general products and realty, the eighth, and textile in that order. I'd like to make some comments in the order of higher progress rate. So in terms of segment, the highest progress was achieved by the eighth companies at 50%, Family Mart, showed very strong performance as we announced recently. The daily sales have been steadily growing, number of customers as well as spend per customer, and also price revisions have been done successfully, and impairment loss on stores have been improving. Of course, there are increased costs such as utility costs, labor costs, as well as costs for the digital transformation, including digital signage. But those higher costs were more than offset with higher sales. So that's the first point. The second highest progress is 43% by energy and chemicals. As I mentioned earlier, there were two extraordinary gains, 18.5 billion yen. There are three major segments or the businesses. They have different characteristics. As for energy, the oil prices came down and had negative impact on profit. And as for chemicals, last year, the chemicals trade was strong and it was weaker. And there are some good domestic operating companies, but the profit declined. And as for the electricity environment solution, the electricity trading was strong, and that led to the higher profit year on year. The third highest progress was 34% by food. In the second half of last year, there were some issues and challenges of some of the businesses, so we had the conservative profit plan, and the progress was 34%. Especially in North America, we have a joint venture of a cereal elevator or grain elevator, which was very strong, and also the Nippon Access project, The food distribution related company and Ito Chu Shokuhin were very strong. And last year, Dow struggled, but they turned around and made profit. And as for High Life, they're still in red, but their procedure to withdraw from North America is going well. So they are making progress toward turnaround. The fourth highest progress was machinery, 30%. And in terms of segment, their core profit was very strong. The reason for that is that from this segment, fiscal year, the equity pickup from Hitachi Construction Machinery started, and also the trading with Hitachi Construction Machinery is progressing. So this was a major factor. And in the auto-related business, this continues to be strong, and the sale of the automobile in Japan, such as Yanase, and also the export showed strength, and also South American dealer business was strong. In leasing business, last year, there were leasing-related business losses in relation to Russia, and other than that, it has been strong. Only negative was the shipping market, which has been declining, and so this has declined year on year. The fifth highest, 24% progress, was achieved metals and minerals. So as we expected, the natural resource prices have come down. So it was a negative growth year on year. And as a business, Marubeni Itoichu Steel showed strength last year and continues to be strong in North American steel pipe. But there has been the negative impact from rising interest rate in dollars. And Brazil-Japan iron ore corporation, JBMF, the dividend was booked earlier than expectations. So we are on track. And the highest progress was 19% by general products and realty. This is the weakest, in fact. And with the lower pulp prices, IFL business has come down year on year. North American construction material business, which showed strength last year, with the higher interest rate and the lower housing starts, a part of the fence business has started slower than the year before. So they had a slow start. And last year, there was a gain on sale of the real estate, and we did not have that this year. So that was one of the negative reasons. And in this company, There are other capital policies that this company uses to replace businesses, and they call themselves as a private equity type trading company. So in this company, Through this asset replacement, there will be various initiatives which will be taken. And because of that, the number was a little lower. Next is ICT and financial business. The progress was 18%. As a percentage per year, it's at low level. But there is a tendency that we have more concentration of the profit in the second half. And we mentioned in our plan that we expect some equity pickup from the new businesses. It's not just CTC, but there are other initiatives planned, and they tend to concentrate in the second half. So because of that, the progress is lower, but we are on track. As for CTC, as we announced the other day, their performance has been strong today. Last year, there was a weakness in the fund business, the startup capital, venture capital fund, but they are still in red, but we are seeing improvements both in Japan and the United States, and the financial services and insurance are doing well. As for textile, the progress is 14%, which is low. One of the reasons is that the extraordinary gains, which was delayed, and there is a seasonality, Usually, the profit increases in Q2 and Q4. And because of this, the annual progress is low, but domestic consumption is recovering. And with that, apparel subsidiaries' businesses are growing, although the amount is not very big. As for others, we continue to include the buffer of 50 billion yen, And the major part is CITIC equity pickup of 22.6 billion yen, which is down year on year. But based on the early budget, the progress is 22%. Especially in China, the profitability of the comprehensive financial business is stable. And last year, there was a revaluation gain on CITIC securities business. in relation to the reorganization, and also due to the higher interest rate in U.S. dollars, the equity pickup came down. And another factor is that this includes the CPP, which is a joint business with CP Group. And this was in red, minus 4.3 billion yen. We plan to generate profit this year, but the pork prices in China, in Vietnam, continue to be low. So it has been difficult to turn it around. And with that, I'd like to end my brief explanation on the business results. Thank you for your attention.