Mitsubishi Corp Ord

Ladies and gentlemen, my name is Tatsuhiko Terada, General Manager of our department. Thank you very much for taking time out of your busy schedule to join us today. We will now begin Mitsubishi Corporation's investor call on the results for the nine-month ended December 2021. First, let me introduce the attendees from the company. Mr. Kazuyuki Masu, Executive Vice President in CFO. Mr. Yuzo Noichi, Senior Vice President, General Manager of Corporate Accounting Department, and myself, Tatsuhiko Terada, General Manager of the RR Department. First, Mr. Tamasu, our CFO, will kick off to share our financial results using the presentation on the screen. Direct results for the nine months ended December 2021, followed by Mr. Noichi's more detailed presentation using the same document. Now, without further ado, we'd like to start. Mr. Masu, please start. This is Masu, the CFO. Thank you very much for taking time out of your busy schedule to attend our financial results briefing for the third quarter of FY 2021. I would like to start with a high-level overview of the results, and then it will be followed by a detailed explanation by Mr. Nauchi, General Manager of Corporate Accounting. On page one, I would like to highlight three key points. First, consolidated net income for the third quarter of FY21 increased by 475.7 billion yen year-on-year to 644.8 billion yen. Second, we have further revised our portfolio earnings guidance from 740 billion yen, which is what we announced in November, to 820 billion yen. Last but not least, In view of the upward revision, we will consider additional shareholder returns, and the details will be shared when we announce the four-year results. I would now like to explain the year-on-year fluctuations, so please refer to the box on the lower left. In the same period last year, our financial results were heavily affected by COVID-19, such as falling resource prices and declining demand. However, with the subsequent resumption of global economic activities, in areas including oil-related business, salmon farming, and steel products business, and we steadily converted profit opportunities into actual profit. We also benefited from solid resource prices such as metallurgical coal, copper, and iron ore. As a result, the consolidated net income for the third quarter increased by 475.7 billion yen year-on-year, surpassing the previous record high full-year income just in the first nine months of the year. This was also the highest quarterly profit ever recorded by the company. Next, I'd like to explain the earnings forecast for the year and the shareholder returns. Please refer to the box at the bottom right. We have decided to revise our portfolio forecast again from 740 billion yen announced in November to 820 billion, an increase of 80 billion yen. The approach revision is based on the better-than-expected progress in each business segment, including some affirming an auto-related business, as well as recent trends in resource prices. The revised forecast of 820 billion yen incorporates all possible downside risks and is therefore considered to be a forecast with high conviction. In addition, based on this approach revision, we will consider additional returns to shareholders and will share the details at the time of the full-year results announcement. The specific method of shareholder returns will be determined comprehensively, including share-by-back option. In summary, we have maintained strong performance in a wide range of fields as in the first half, and with accumulated profits in each business, we have exceeded a past record high full-year profit just in the first nine months of the year. We view the performance as strong results. On the other hand, We believe that the favorable business environment for the current fiscal year will not last forever and that ups and downs are bound to occur. For this reason, we will not be swayed by the good results of a single year, but will continue to work steadily on the tasks at hand, such as strengthening the functions of each business and reshuffling assets in order to enhance profitability and corporate value. This will conclude my presentation on the overview of the results. Now, Mr. Noichi from Corporate Accounting will provide a detailed explanation focusing on the status by segment.

I'm Noichi speaking. So, from my side, I would like to give you some follow-ups. So, by segment for the third quarter results, I would like to explain about that. So, please turn to page two. So, for the third quarter results, Out of the 10 segments, all of the segments have increased the income compared to the previous year. Financial gas, year-over-year, from $16.6 billion has increased by $68.5 billion to $85.1 billion. This is due to the energy-related business. The dividend income has increased. In terms of the energy-related business and the North American shale gas business, there was an increase in earnings. In terms of the iron business and the North America plastics and business has improved, and the plastic building materials business, industrial materials, it was increased from $1.2 billion, increased by $3.7 billion to $31.9 billion. For the petroleum and chemical solutions, the LPG-related business and the chemicals business has increased earnings in terms of equity holdings and increased income as well. In terms of the mineral resources, The Australian metallurgical coal business increased market prices as contributed, and the copper business, their dividend income has increased. And for the iron ore business, there has been increased earnings in terms of liquid holdings. Compared to this year's 54.8 billion yen, it has increased by 193.2 billion, ending at 248 billion yen. And going to the right-hand side of the presentation, for the automotive and mobility There has been a loss related to Mitsubishi Motors in the previous year. There has been one of losses, and there has been an increase from that. And Mitsubishi Motors and the Asian automotive business, there has been an increase in equity holdings. There was an $8.7 billion deficit last year, but it has increased by $94.5 billion, and then the income was at a profit of $85.8 billion. So the summer farming business has improved earnings. For the food industry overall, last year it was $30.23 billion, but we saw an increase of profit by $39 billion and ended at $71.3 billion. For the consumer industry, compared to the previous year, the convenience store business and the Thai-related business has seen increased earnings. Lastly, going to the urban development business, The increased fund evaluation profit and the disposal gains of assets in the real estate development business contributed. Despite the impairment losses on the sales of the aircraft leasing company, so last year it was $10.9 billion, but this year it has increased by $19.4 billion and ended at $30.3 billion. Next, going to page three. This is about the cash flow status. According to the right-hand side of the bar graph, at 2021 third quarter, please look at the cash flow situation. The gray, the underlying operating cash flows, $848.2 billion of cash in. The orange investing cash flows is $180.4 billion is cash out. As a result, the adjusted free cash flow is $667.8 billion of adjusted free cash flows. So the breakdown of the investing cash flows is on the lower right. Please look at the orange colored boxes. In terms of the cash out for the copper business, Australian metallurgical coal business, LNG-related business, we have conducted investments and loans. So this was $533.5 billion in terms of cash in for the North American real estate business and the North American share business. We've collected investments. $353.1 billion. Investment cash flows on net basis, $180.4 billion of cash out was seen. Please go to page four. So as we explained at the beginning of the presentation, the full year forecast in November, against that revised forecast, we have further revised it upwards by $80 billion to $820 billion. By segment, Out of 10 segments, at seven segments, we are conducting an approach with development, natural gas, industrial materials, petroleum and chemical solution, mineral resources, automotive and mobility, food industry, urban development, and the seven segments. So since 2018, it is going to have a record high level. of the earnings since we have started to report in this segment. So I would like to focus on the four segments where there has been more of a revision. For the natural gas, we have an increased earnings and transaction profits in the LNG-related business. We have rises upwards from the November numbers by 10 billion yen and 102 billion would be the outlook. So going to the mineral resources, in the copper business, increased dividend income is expected. And in the iron ore business, the earnings is going to increase based on this situation. 16 billion of upward revision is going to be conducted, ending at 256 billion forecast. Going to the right-hand side of the presentation, on the very top, we have automotive and mobility. In the Asian automotive business, we are going to see an increased earnings. This will be a 12 billion yen of upward revision, and 100 billion yen will be the forecast for this segment. Lastly, Going to the food industry, for the salmon farming business, the increased earnings will be seen. So this will be a 19 billion yen upward revision, and 79 billion will be the revised forecast for this segment. Going to page five, this will be the market conditions for our forecast. So please refer to this. That ends my presentation. Thank you very much. So with this, this will end our presentation. So we'd like to go into Q&A. Please ask one question, and then we'll answer a question. And one person will be allowed to ask up to two questions. For those who have questions, please press the asterisk and then press 1. If your turn comes, please state your company name and your name and then ask your question. If you want to cancel your question after the asterisk, please press 2. In terms of the questions related to the IR data, the IR Division will be responding to that, so please refrain from asking the questions about the data. We are planning to end this session by 6.45 p.m. So let's start the Q&A session.

So the first question is from SMBC NICO. Mr. Morimoto, please. Please ask a question one at a time. Yes, this is Morimoto from . Thank you for allowing me to ask questions. My first question is, looking at the results, I think the high interest is the additional shareholder return. And also, you mentioned that one of the options will be share buyback. And I think you have written that clearly in the presentation. And I believe that you had internal discussion to reach this way of communication. And I guess you will come to a decision after closing the year, but looking at the free cash flow after shareholder return, I think the current free cash flow is $460 billion as of Q3, so I think you will have over $500 billion after the full year. So I think you have taken that into consideration regarding the shareholder returns. So I think in view of the next MTP, it may be difficult for you to answer this question, but what kind of discussion took place to reach a decision of additional share buyback? And I think I would just like to learn the balance between shareholder return and the leverage ratio. And I guess it's difficult for you to mention the size of the additional shareholder return, but can you share your thoughts on the shareholder return, please? This is Masuda CFO. I think later Mr. Nouchi will make some additional comments. But what I can say to answer your question is that given the current situation, it was difficult for us to reach one decision. So a lot of discussion took place, as you pointed out. And we knew that it would have been better for us to state some kind of figure. but we did not want to offer something that's abstract, and we have not closed the year yet. So based on the circumstances, we wanted to offer you something more clear after closing the bid for the full year. But we could not refrain from saying nothing. So to the market, we wanted to say that we are considering some options, but we would like to ask for your patience. That's what we wanted to communicate this time. And regarding the cash flow, if I may clear up the mechanism of how we think about the cash flow, six years ago we said that the cash flow after dividends should be zero. And I think that's what we communicated six years ago. And we still maintain that idea. So you may say that you have extra cash flow after six years. But we have given due consideration to our cash flow position. So if you just look at the cash flow, after dividend, we will have some extra cash, but when we do M&A, when we acquire a company with debt, which is Lawson and Eneco, and in those two cases, the acquired company had debt. We did not use the cash flow, but it will hit our leverage ratio. It will not be reflected in the cash flow, but we did see an increase in the debt, so that had an impact on our financial position. We have not been able to share that to the external audience, but we manage that internally. So if we manage our cash flow strictly throughout the past six years, including the schedule of the repayment of the debt, and also we did a share buyback three years ago, so if you put that all together, then we will have the equilibrium for cash flow. So that's one thing that I hope you will understand. And as for what we are going to do going forward, I guess it's not appropriate for me to comment about that, and Mr. Noichi, who will succeed my position, can make some comment on our actions for the future. Hello, this is Noichi, the General Manager for Corporate Accounting, and as Mr. Matsu explained, If I were to make some additional comments in the discussion, we discussed about the progressive dividend, which has been appreciated by the market. So based on that, we would like to consider future returns. And the business performance compared to what we had expected in the past, the volatility has risen. So I think we need to pay due attention to the volatility of the business. So that's also included in our consideration in the discussion. And in view of that, our shareholder return policy today was that we wanted to maintain the soundness of the financial position. And that will be in place. But compared to the past, we now feel that we can incorporate some more flexible thinking toward the shareholder return. But at this point, this is all I can say in a concrete way. But we understand that there are expectations from the shareholders and we would like to respond to those expectations from a medium to longer term view. So that will be my answer. Thank you. Thank you for those answers. My second question is it may be difficult for you to answer this. I think you are in the process of putting together the MTP from next fiscal year and internal discussion is taking place. And if you could share some insights What kind of agendas and challenges are you discussing about in view of putting together the next midterm business plan? If you can share anything with us. This is Naoichi from corporate accounting. Regarding the midterm business plan, we we may not be able to say that we started the discussion. We are kind of on that point. And looking at the direction, now looking at the current MTP of the last six months, and when we reflect on that, we are analyzing what went as expected and what deviated from the expectations. And also, the challenges that we need to address are being identified from various perspectives. So we did a provision of 120 billion yen, and it's still short of the original MTP target of 900 billion yen. However, I think we can be quite satisfied with the numbers, but we did benefit from the strong resource prices. Community prices are going up, and the market-related business has been quite good. So under the circumstances, we can identify the agendas that we need to work on. So apologies, but frankly speaking, we're still In the midst of just starting the conversation, also at this point, there's not much that I can share with you. Thank you very much.