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

There are two questions. First one is about energy. The progress rate of energy is low. However, as you explained, in the second half, probably LNG trading is going to contribute. And compared to the previous year, trading volume seems to be improving versus last year. So can you update us more on Q1 and if there is any potential for upside for the full year, whether or not that is true? That is first question. And the second question is machinery infrastructure. So in terms of net profit, 55% progress is made. Of course, there's a one-time factor, but excluding that, 30% progress, which seems to be quite good. So what is the full-year prospect in terms of the business level? Is there any upside that you are seeing right now compared to the assumption? Or as you see, there are some businesses that you are seeing some evening out. So in the machinery infrastructure, can you update us on the progress right now? Well, the Global Controller Division, General Manager, will add more partially, but for energy... On my personal note, well, in the internal plan, we're not disclosing first quarter figures, so I'm so sorry for that. But in line with the plan, we are making steady progress, or the pace is steady. In comparison to the previous fiscal year, LNG trading, there were some ups and downs, but Mr. Kurihara will make additional comments on that. And as for machinery and infrastructure, Python and VLI recycling was implemented steadily, and there was an upside that we were able to capture from the depreciation of YAM. And in the North American automotive business and other mobility businesses and ships businesses, For these businesses, in addition to chartered vessels, how much sale of ships is materialized would decide the profit, number one and number two. At least we are capturing the effect of working yen. We're not sure how much effect we will see in the second quarter, but we are capturing the upside so far, and we are expecting slightly ahead of the plan at this moment. Let me make some additional comments. As for energy, compared to the previous fiscal year, well, you were asking about that, but in the previous fiscal year, LNG trading were making losses in some trading ahead of others, and there's volatility that is lessened this fiscal year, so the profitability has been more leveled out throughout the year. So in this fiscal year, we are seeing profits in LNG trading, or profits have increased at least. But there is a skewed volume in the second half. That has not changed. So throughout the year, I think we are making steady progress in line. And as for machinery and infrastructure, 55% PAT progress, which is quite high. But as for cooperating cash flow, there is tax effect, a burden, and dividends from associate companies has some time lag. So PAT and cooperating cash flow, there was some gap between these two. That's all. Thank you very much. So as for machinery and infrastructure, in mobility, at least in the first quarter, There was a yen depreciation, so your performance was good. But in terms of U.S. dollars, has there been any changes? Or in the trading firms in Japan, the automotive business has been seeing some changes in their performance. But for your company, in the mobility business, is there any sign that you see of changes that you see? Well, for automotive business, North America, U.S., and Canada, in other words, are the main geography, and in this business, in the previous fiscal year and the year before, right after the pandemic, there was a pent-up demand that has manifested, so there was a huge increase in performance, but that has stabilized. But compared to the pre-COVID-19, profit level has been increased significantly, and that has been maintained. Therefore, or rather, despite that, The U.S. economy is something that we're closely watching, the impact from interest rate cut and economic stabilization and competition. So a decent level of business performance is something that we can maintain. That is what we see for the full year based on this mixed picture. Thank you.

First of all, about asset recycling, the base profit and the balance between. So the larger projects for this fiscal year that has been planned, that was implemented well. And for this fiscal year, other than these lumps, the There is nothing else that was expected. I think that was in the plan. So when it comes to asset recycling with cash in, cash out, there may be projects that may come into effect. So there will be pipeline accumulation in investing, but also in recycling as well. So in this fiscal year and towards the next fiscal year, we can expect a certain volume of pipeline, so it would be appreciated. So if you could give us a hint as to how big they are. And also the base profit, maybe we can look at it as being substantial in the... lumps of projects, there are areas in which we are seeing growth and in areas where we are seeing stagnation of growth. So there is a mixture of different situations. So the benefit of the investment made, for example, IHH is increasing profit, so that is showing short-term returns on the investment, but of course it would be great if we could see growth in such short-term returns. But compared to the previous year, the start had been negative. And you're not seeing great changes for the full year, but is there a possibility that it may change going forward? That is my second question. Yes, thank you very much for your questions. As for asset recycling... Looking at our track record, I think it is stable. However, having said that, the newer projects with our associated companies, the sale of such a business, to have them cleanly allocated every year is going to be very difficult. And at At the moment, we are not making that balance adjustment. In other words, recycling is stable. However, whether it is going to come out constantly every year, it is very difficult to control, to be frank with you. Compared to the previous MTMP and the current MTMP, each business segment has looked at ROIC and also working on improving the quality of the portfolios. And in the different business divisions, they have higher expectations. And they are switching to more efficient businesses and business operations. We said that they are becoming normal and stable, but in the current MTMP and in the future MTMPs, we hope that it will become more stable and we will be able to accelerate initiatives. Of course, As for the details of the pipelines, we would like to refrain from giving you explanations as of now. And as for your second question, within the mixture that we have, we hope to improve the base profit, and that is going to improve corporate values. Therefore, by showing that we can bolster corporate value, we'll be able to win the trust of everyone. So we are going to continue to bolster base profit, as mentioned in MTMP, but also bolstering the existing businesses and also cut losses in the loss-making businesses. And as for the new businesses, we would like to include... with good balance, those operations or businesses that is going to bring us profit in the short term. And, of course, in the slide, as I explained earlier, we are looking at four, FY24 and FY25, We are looking at, in the first quarter, just three months, we are looking at time of earnings contribution from new projects, and we are seeing certain progress already. So we hope that by the end of the last year of MTMP, we will be able to realize what we have planned for ourselves, and we will continue to focus on these projects. Of course, $250 billion of base profit, that we explained at the end of last fiscal year, update was not given because it's only been three months. But in the midterm period, we hope to be able to give you an update of the progress. So I hope you'll be able to confirm your understanding at that timing. And we would like to make efforts so that that can be realized. So I understood very well. Thank you very much.

I have two questions. First one. Previously, there were some directions by segment, but there were things that were not mentioned, like lifestyle and innovation and corporate development. Well, the full-scale earnings is going to materialize from the second half, but if you exclude recycling, progress seems to be quite weak in lifestyle. So do you think there's no problem excluding runtime factors? Things are going well. Is that how you look at this business segment? Or more than you had expected, there are businesses that are weaker. Is there any such business? That's my first question. And second question is about shareholder returns. Just a moment on the slide. On page 10, So I don't think this is the intention behind this wording, but cash-in expansion or continuous shareholder return in line with the cash-in flows increase. So macro environment has been changing in various manners, and markets are not doing well, and the yen is starting to depreciate. and can you actually expand cash inflows based on this direction of external environment? That's my doubt. And in the waterfall chart, On page 14, there is new businesses on the left, and 3.6 billion yen increase in profit. That is made visible to external eyes, and that was appreciated. But, for example... Four times of 3.6 billion will be 15 or 16 billion yen. It may not be that simple, but I think in the future that will lead to more dividends. But if you look at just one quarter, of course it doesn't make sense probably, but... What would be the expectation of the shareholder returns based on this one-quarter results? So how are we supposed to have expectation on your shareholder return? Because that may be one question that shareholders may have. So can you share your current thoughts in the capacity of CFO? And also, 1.2 trillion yen, as a surplus fund in the previous MTMP, how are you going to spend that money? Can you also touch upon that? As for lifestyle and innovation and corporate development, compared to the four-year plan, the progress rate is low. We do recognize that, and we are looking into the details behind that. And, of course, there are challenging targets that were set originally in the first place. But having said that, previously recorded profit level, if you look at that, For each of the segments, for lifestyle, while it is not sufficient, that's what you said, but new business contribution will start. And in innovation and corporate development, some real estate assets recycling could produce some gains. There are some businesses that have such characteristics, and they are more skewed toward second quarter onward. And we will capture those gains steadily so that we can achieve our budget, our plan. So it's not easy, but at the moment of first quarter, We don't think that there is a great concern about underachieving the targets for the full year. So that's for the first question. And for the second question, the core operating cash flow and also asset recycling. After the three-year of MTMP is over, we will see the result, but progress is made steadily or we are overachieving the target of MTMP. At least that is the momentum that we see right now. And altogether, at least within the framework of cash flow allocation or management allocation expansion, we are making sure that this will lead to returns to the shareholders. That's the intention behind these sentences. And also, ROE maintenance and expansion, and also there's an issue of leverage. There were some views and suggestions that we received on this point, but we have to look at the bottom line. In addition to expansion of COCF, and achieve COCF, that will over the plan. And asset recycling should be implemented more than the target MTMP so that we can expand shareholder returns. And in parallel, as I said, the optimum capital level is what we are also pursuing. and whether we need some adjustment or not to achieve that is something that we will continue to consider. Thank you. I think this valuation is quite low. Of course, the dividend from associate companies has some time lag. Maybe that was some effect, but how did you see this cooperating cash flow inside the company? How would you rate this? Well, the dividends that we receive has been carried over to the second quarter. in large amounts, and this will be steadily achieved. And that probability has been confirmed at this moment. So in order to achieve the whole business plan, there is no great concern that we have. Relatively speaking, there is a decent amount of dividends that we are supposed to receive has some time lag, but we evaluate this as something that is in line with the plan.

Thank you very much for taking my question. I'd like to ask two questions about individual businesses. One is on copper. On page 35, Anglo-Sul and Kodurashi, The copper price and FX factors included, the profit may seem weak. For Anglo-Sul, Okusa Mitsubishi is positive, but you are in the negative zone. So compared to the external environment, I feel this is a bit weak. How do you understand this? That is my first question. And the second question is about chemicals. On page 31, the profit and also the progress is 21% or more. But Yu Yanshan, the FTBPL profit is included. Therefore, what is the impact that you're seeing here? Is this a big impact? And excluding this, do you think chemicals is weak? Can you talk about your current thinking behind these numbers, please? Thank you very much for your question. The copper business, especially Anglo-American soul business in Chile, As a single business, of course, the copper price increase and cost saving is the efforts that we are making, and we are seeing impacts from such efforts. And it is exceeding the plan, and that has been confirmed. But, of course, the investment interest burden is something that we are experiencing as well. And the operational level business... It is still very difficult. So production efficiency and cost depreciation, these are the two items that we are working on. So we are moving from two sites to one site, and that has been a drastic change. that we have taken so that we will continue to make turnaround efforts in this business. It is stable at the moment, but if there are increases in corporate prices, we'd like to take that as an upside and capture that upside. going forward. And as for chemicals, thank you very much. Yu Yanshan acquisition and also valuation, the one time is recorded, as you can see on page 31. But without that, of course, it is not as if it's a week. This is just an upside that we were able to capture. And if the progress rate is more than a quarter, that is something that we are making contributions to. And of course, even if we don't have it, we are trying to be in a challenging position. And accordingly, we are seeing very steady progress. I myself believe that... It may be a stretched target, and I was a bit concerned, but the first quarter started off very well. That is my understanding. Thank you very much. So I'd like to ask an initial question about chemicals. As for Novus paid 37, it is 500 million yen per positive. So Novus has been very successful in turning around and making profit. Is that the correct understanding? As for Novus, we have competitors' plants, and there are plants for them to start new operations. And the thionine price is going to be very difficult to... for some time. So sales optimization and cost reduction is needed. So we are still struggling in this business. But in the nervous business, the gut health solution, what we call, so non-methionine, for example, the livestock feed, these are specialty businesses in which we are expanding. And The profit from Novus will be supported by these other businesses. So methionine business may be struggling for some time. So we would like to respond accordingly. Thank you very much. Understood very well. Thank you very much.

It seems that there are no additional questions. We'd like to close Q&A session. Lastly, we'd like to announce the AR event on December 5th, Thursday. In the afternoon at Otemachi Mitsui Hall and the Zoom webinar, there will be Investor Day 2024 that will be organized. And details will be emailed to you once we finalize the details. And I hope that you can attend the meeting as well. That concludes our session today. Thank you very much for your attendance despite your busy schedule today.