Mitsui & Co Ltd Ord

Good afternoon. I'm Tetsuya Shigeta, CFO. Thank you for joining us today. I will begin by giving a summary of the FI March 2025 Q1 operating results. I will then hand over to Masao Kurihara, General Manager of the Global Controller Division, who will speak on the details of our operating results. During Q1, the U.S. economy showed overall strength despite ongoing monetary tightening. but there are still many uncertainties in the economic environment, such as geopolitical risks and the sluggish real estate market in China. Even in this environment, we executed gross investments and asset recycling and are steadily moving forward with initiatives aimed at enhancing the quality of our business portfolio. I will summarize our operating results for Q1. Co-operating cash flow, or COCF, decreased by 40.1 billion yen year-on-year to 215.8 billion yen, and profit increased by 23.2 billion yen to 276.1 billion yen, which we consider to be in line with our expectations. Furthermore, regarding the share repurchase of up to 200 billion yen announced in May, we had carried out 76.8 billion yen of this as of the end of June. Today, we separately announce the amount that we have carried out in July, and we expect to complete the repurchase as planned by September 20, the end of the repurchase period. This slide indicates the progress rate of each segment against the full-year business plan. In the first quarter, we made steady progress overall against the business plan. From Q2 onwards, we expect multiple segments to make larger contributions. For example, in the energy segment, we expect a contribution from the LNG business in the second half. In the lifestyle and innovation and corporate development segments, a full-fledged contribution is not expected until Q2 onwards due to seasonal factors and the timing of profit recorded. In this section, I will discuss cash flow allocation for the first three months. In the first quarter, we steadily executed gross investments and carried out asset recycling, including some large-scale deals in line with the Medium-Term Management Plan, or MTMP. Cash inflows for the period was 460 billion yen, comprising COCF of 216 billion yen and asset recycling of 244 billion yen, including the sale of the Python Power Generation business and the partial sale of VLI. Cash outflows was 330 billion yen, comprising investments and loans of 253 billion yen and share repurchases of 77 billion yen. Furthermore, following the completion of the sale of Python, we have now reached a renewable energy ratio target of 30% for our power generation portfolio. This has been a climate change-related target by 2030, which we were able to achieve ahead of schedule. We will continue to push forward with decarbonization initiatives in each of our businesses while reconfiguring our portfolio and taking actions to reduce GHG emissions. I will now talk about progress being made in our growth investments. In the three key strategic initiatives, we executed and made decisions on multiple growth investment opportunities unique to Mitsui. This was achieved by leveraging collaboration with partners with whom we have built up trust over a long period of time, experience that we have accumulated over many years through business, and combining cross-industry functions and expertise. We are making progress in initiatives to further bolster our areas of strength and to enhance the business portfolio. One of these is the device LNG project in the UAE, an overview of which is shown on the next slide. As announced last month, together with the three international energy majors, we have invested in the RISE LNG project being led by Abu Dhabi National Oil Company, or ADNOC, which has been a partner of ours in the LNG business for 50 years. Our investment in the project will strengthen both our LNG business portfolio and our trading portfolio, leading to stable long-term growth in our earning base. Specifically, we are participating in 11 LNG projects in 8 countries, and our equity share of LNG production capacity will increase by 12% to 9 million tons a year, including the rice LNG. In terms of LNG trading, volumes have reached an annual level of 10 million tons. This volume is equivalent to approximately 15% of Japan's annual imports. Within our business portfolio, LNG is an area with high earnings power. For the RISE LNG project, in addition to receiving dividend income from the LNG business, we will pursue upside through the trading business. We will work with our various partners ahead of the production startup in 2028 in order to further bolster our areas of strengths. Furthermore, this project is scheduled to use clean power to produce lower carbon LNG, which will also lead to a broadening of our options for achieving a decarbonized society. As I explained just now, we are executing carefully selected growth investments. The projects shown on the slide is bold, have already started to continue to earnings. As you can see, many of the projects in which we invested during Q1 are already contributing to earnings, showing that in terms of growth investments, we are successfully striking a balance between near-term profitability and building a long-term earning base. We carried out a two-for-one share split with an effective date of July 1, 2024. The full-year dividend for FY March 2025 will be 100 yen per share, 15 yen higher versus the previous fiscal year. This will be the minimum as part of the progressive dividend. There has been no change in our policy of enhancing shareholder returns that offer both stability and flexibility in accordance with the expansion of cash inflows. That completes my presentation today, so I will now hand over to General Manager of Global Control Division, Masao Kurihara, for the details of performance in Q1.

I am Masao Kurihara, General Manager of the Global Control Division. I will now provide details of our operating results for Q1. First, I will talk about the main changes in COCF by segment compared to the previous period. COCF for the period was 215.8 billion yen, a year-on-year decrease of 40.1 billion yen. In mineral and metal resources, COCF decreased by 2.9 billion yen to 88.2 billion yen. In energy, COCF decreased by 2.6 billion yen to 52.7 billion yen. In machinery and infrastructure, COCF decreased by 35.8 billion yen to 24.4 billion yen, mainly due to an increase in taxes due to asset sales and decrease in dividends from associated companies. In chemicals, COCF increased by 4.9 billion yen to 25.2 billion yen, mainly due to improved profit margin at Novus. In iron and steel products, COCF decreased by 0.5 billion yen to 2.0 billion yen. In lifestyle, COCF decreased by 14.5 billion yen to 7 billion yen, mainly due to a decrease in dividends from associated companies and valuation loss at a drug discovery support fund. In innovation and corporate development, COCF increased by 0.4 billion yen to 7.5 billion yen. Other factors such as expenses, interest rate, interest, taxes, etc., which are not allocated to business segments, totaled 8.8 billion yen. I will now talk about the main changes in profit by segment compared to Q1 of the previous fiscal year. Profit increased by 23.2 billion yen to 276.1 billion yen. In mineral and metal resources, profit increased by 2.6 billion yen to 80.5 billion yen. In energy, profit decreased by 7.5 billion yen to 19.2 billion yen, mainly due to lower gas prices. In machinery and infrastructure, profit increased by 73.4 billion yen to 126.0 billion yen, mainly due to asset sales from the sale of Python and the partial sale of VLI. In chemicals, profit increased by 2.7 billion yen to 18.2 billion yen, mainly due to FTPL profit related to Yu Yang San, traditional Chinese medicine business in Singapore. In iron and steel products, profit increased by 0.4 billion yen to 6 billion yen. In lifestyle, profit decreased by 46.3 billion yen to 14 billion yen, mainly due to the absence of a fair value gain on AIM services recorded in the previous fiscal year. In innovation and corporate development, profit decreased by 1.9 billion yen to 6.2 billion yen. Other factors such as expenses, interest, taxes, etc., which are not allocated to business segments, totaled a profit of 6 billion yen. This page shows the main factors influencing year-on-year changes in fiscal year March 2025 Q1 profit versus the previous period. Base profit decreased by approximately 19 billion yen. This was mainly due to lower profit at PTL. decreasing LNG dividends, lower profit in food-related trading, and absence of profit from Python, as well as Kaikia's field following their sale in the previous fiscal year. On the other hand, there are also many positive factors, including LNG trading, contributions from new businesses, ships, a turnaround at Novus, improved performance at IHH, and chemicals trading. When I say new businesses here, I am referring to those businesses that started to contribute to earnings in the near term, primarily those related to mobility, protein and functional food ingredients. Resources cost volume resulted in an increase of approximately 5 billion yen, mainly due to an increase in sales volume in the iron ore business. Asset recycling resulted in an increase of approximately 76 billion yen, mainly due to the gain on the sale of Python and VLI. In commodity prices and forex, due to a decrease in commodity prices, profit decreased by approximately 16 billion yen in total, including 7 billion yen for oil and gas and 5 billion for copper and others. For forex, profit increased by approximately 23 billion yen, mainly due to weaker yen. Valuation gains, losses and one-time factors decreased by approximately 46 billion yen, mainly due to a swing back from the previous year. Now let's take a look at the balance sheet as of the end of the first three months of the current fiscal year. Compared to the end of fiscal year March 2024, net interest-bearing debt increased by approximately 0.1 trillion yen to 3.5 trillion yen. Meanwhile, shareholder equity increased by approximately 0.4 trillion yen to 7.9 trillion yen. As a result, the net DER fell to 0.44 times. That concludes my presentation.

Now we'd like to start the Q&A session. Thank you very much. I'd like to ask two questions. The first question, the financial results is very steady. There are no big surprises, but the macro environment, including the foreign exchange, is changing a lot. So The trading companies used to have very strong results, but it may peak out because of these changes in the environment. And on page 14, in base profits, there is a negative of 11 billion or so. So from the CFO point of view, where are you seeing shadows over the horizon? Where are the areas that you need to be careful of, especially in non-resources areas? That is my first question. And my second question, it may be difficult for you to answer, but in June, the crochet holdings were sold and you were able to show the equities that you have had. And as you're buying other, you're doing repurchases, of course you're making decisions as to how to sell the cross-share holdings. So selling them in the market or conducting share buyback, what is the thinking behind these initiatives? That is my second question. Thank you. Thank you very much for your question. First of all, as a whole, As we have just mentioned, I think we are very steady when it comes to performance. Of course, we are looking at the waterfall chart, and there is a negative 19 billion yen. of a base profit, but in the central, in the asset recycling, and on the right, the valuation gains, losses, and one-time factors, with the net, I think there was like 30 billion yen of impact. So this is quite similar to the previous fiscal year. So yen depreciation in the market may be going up. There may be such factors that is providing the impact. But looking at the portfolio, the regional allocations or business allocations or within the value chains, upper stream and downstream allocations, these are having an impact. And in total net, we are seeing good results. That is a base profit and foundation that we were able to build for ourselves. So it is not as if we are seeing any shadowing over in one segment. So as we mentioned in the MTMP, we are going to accumulate those funds profit basis, and we will see good results coming from them going forward. And as for the risks... Of course, we are continuing to monitor, but there are geopolitical risks that are surfacing. And, of course, as for the global commodity market and also for trading, there may be some discontinuation. So there may be some risks that is not expected that will bring problems. and that is something that we want to avoid, and we believe we can do that by preparing ourselves well. And, of course, the U.S. and China economy going forward. is very important. I mean, China is sluggish and that is continuing, and that may have a global impact and it may have a wider impact. But as for the U.S., we are now seeing soft landing to be more of a possibility. And if that is going to have a global impact, whether from the economic sluggishness, that is something that we need to monitor going forward as well. We had yen depreciation and the interest rate in Japan to go up. And, of course, in the U.S., we may see interest rate going down. And in the commodity market, we are seeing good support. Therefore, with such mixture of factors, we believe that we'll be able to manage the situation. So that is the answer to the first question. And as for the second question, of course, we are going to have sales overseas. And this is the first time that we have experienced it. But as for the overseas sales, of course, the timing of the sales is something that we have confirmed. And with the associated members, we have had discussions. And, of course, in understanding of the market situation, this was a decision made. In the short term, The conditions of the seller is something that we have considered. And, of course, we need to make sure that we can eliminate the pressures short-term. That was a need on our side. And on the seller's side, there were needs, too, of the situation in short-term. So our needs matched. And that's why we have made sure that we will be able to improve the liquidity by selling goods. and also whether we were not able to absorb it within share repurchases. Of course, we are continuing with the share repurchase, and that is going to end by September 20th. and we are proceeding towards that goal. So that is one big factor. And also in the past, as we have indicated, in the fall of 2022, I believe it was, we have done stock repurchase through TOSNET 3. We were able to buy our own shares, so we believe it's one of the options that is available to us. But, of course, separating all these issues and the third party selling all the listed stocks there are initiatives that we can take and it's not as if we are not going to not do share repurchase but if the timing is right with the options that is available we will consider all of them to be conducted so that is the answer to my second question thank you very much thank you