Mitsubishi Corp Ord

Thank you very much for taking time out of your busy schedule to participate in Mitsubishi Corporation's financial results briefing for the third quarter of fiscal 2023. I am Okamoto from Corporate Communications Department, and I will be your moderator today. We now have journalists, investors, and analysts joining this session, both at the venue and online. At 3 p.m. Tokyo time today, we announced the financial results for the third quarter of fiscal year 2023 on the website. So today, first, we will have Mr. Nakanishi, President and CEO, and Mr. Noji, our CFO, present on the results, which will be followed by a Q&A session with the press until 5.50 and with the investors after a break and analysts until 6.20 p.m. Now let me introduce the representatives from the company. The second gentleman from your right is Katsuya Nakanishi, representative director, president, and CEO. To his left is Yuzo Nauchi, representative director, executive vice president, and CFO. To Mr. Nakanishi's right or is Kenji Kobayashi, Executive Officer, CSEO. At the far left is Yoshi Hiroshimazu, Executive Officer and General Manager of Corporate Accounting Department. So, for example, it will be in the presentation. If you wish to take photos, please do so from the camera stand at the rear or from the left and right side of the venue. If you wish to take photos in the front, please stay within the line indicated on the floor. Now, we'd like to get started. I'll hand over to Ms. Tanaka Nishi. Good afternoon, ladies and gentlemen. This is Nakanishi, President and CEO. Thank you very much for taking time out of your busy schedule today to attend the financial results briefing for the third quarter of FY2023. Together with the financial results release, we just announced our largest ever share buyback program of 500 billion yen, as well as the capital business partnership agreement between Lawson and KDDI. I'd like to explain these two important news before I dive into the overview of the financial results. First, on the shelf of the return. With a little over a year left under the Midterm Corporate Strategy 2024, underlying operating cash flow is exceeding the initial forecast at the start of the midterm plan thanks to the solid business performance. Furthermore, good progress in investment return fueled by steady execution of the value-added cyclical growth model has led us to believe that we have approximately 1 trillion of additional funds available for growth investments and shareholder returns during the current midterm plan. Based on the current investment pipeline, we reassess the amount of funds to be invested for growth during the remaining period of the mid-term plan. After considering factors such as financial soundness and market expectations, we have decided at this time to allocate 500 billion yen out of the 1 trillion to additional shareholder returns. In May last year, we did a buyback worth 100 billion yen. As part of the shareholder return for this fiscal year and also in November, announced a 1 for 3 stock split, as well as a dividend hike to 70 yen per share. If we add the 500 billion yen share buyback announced today, the total payout against the full-year guidance is expected to be approximately 94%. On the other hand, investment for growth has so far amounted to 1.6 trillion yen, or 2.1 trillion, including what's been committed out of the 3 trillion yen set forth in the current midterm business plan. We will carefully select opportunities from our investment pipeline and steadily execute quality investments in the final year of our midterm business plan. We will determine during the course of the current midterm business plan whether to allocate the remaining 500 billion out of the 1 trillion yen to growth investment or shareholder returns based on the progress of future investments, cash flow trends, and other factors. Next, I would like to talk about Lawson's Capital Business Partnership Alliance with KDDI. We already presented at the press conference earlier, so I will skip the details. Since our initial investment in Lawson in 2000 and turning it into a subsidiary in 2017, We have been supporting Lawson's growth as a shareholder and also as a parent company. Now we have decided to invite KDDI, a telecom carrier with a strong customer base and digital capabilities, to join as a partner. We are committed to leveraging the respective strength of three companies, ourselves, KDDI, and Lawson, to further grow Lawson's business and the corporate value of the company. As part of our organizational reform for fiscal year 2024, we announced in December last year the establishment of the SLC Group with the mission of building a value-creating platform mainly in the midstream and downstream domains with the aim of creating a smart life and better living. Lawson, with its network of more than 14,000 stores, can serve as an infrastructure that supports the lives of local residents and as a touchpoint that directly connects with consumers. Lawson is positioned as an essential business platform for the newly established SLC Group in realizing its strategic objective of building a value creation platform through the fusion of real and digital. While executing investment for future growth, we will pursue strategic capital opportunities such as this transaction that we announced today to bring a new growth story to existing businesses and create a virtual cycle of mid- to long-term growth and value creation. With that, I'd like to conclude my remark and hand over to Mr. Naoji, our CFO, to walk you through the financial results.

Next, we have Mr. Noji CFO. Thank you. I am Noji CFO. I'd like to now explain the overview of results. Please turn to page 3 of your presentation material. Consolidated net income of the first nine months of FY 2023 was 696.6 billion yen, which is the second highest ever following the year before. Due to the previous year's soaring resource prices, profit decreased by 259.2 billion yen year on year. But we are steadily accumulating profits in each business. Profits are trending at high levels. As for forecast for FY2023, We are making steady progress of 73% against 950 billion yen forecast announced in November. As for the shareholder returns, Mitsunaka Nishi already explained, we would implement up to 500 billion yen additional share buybacks. As a result, FY 2023 total payout will be about 890 billion, highest ever, and total payout ratio is expected to be 94%. Next, let me explain the first nine-month progress of cash flow allocation plan under midterm corporate strategy 2024. Please turn to page 4. During the term, Cash in includes 904.9 billion yen underlying operating cash flow and 644.1 billion yen cash flow from divestments. As for cash out, 706.5 billion yen investments were executed. Adjusted free cash flow was 842.5 billion yen positive. The cumulative results under mid-term corporate strategy 2024 to date are 2.2 trillion yen underlying operating cash flow, 1.3 trillion yen cash flow from divestments. We are making solid progress against the forecast. As for cumulative investments, there were 1.6 trillion yen, including the projects that we are committed to. The cumulative adjusted free cash flow was 1.9 trillion yen. Please turn to page 5. It shows the cash allocation under mid-term corporate strategy 2024 as a background of the additional return. Already, Mr. Nakanishi explained this to you, so I'm going to skip this. With that, I'd like to end my presentation. Thank you. Thank you very much. That concludes the two presentations. Now we'd like to take questions from the media, but there's no translation available. you Thank you for watching. you you you Thank you. you Thank you. you you you you Thank you. you Thank you. you you Thank you. Thank you. you Thank you. you you you you Thank you very much. raise a hand function in Zoom. I would nominate the name of the person. And when you see your status change to the panelists, please turn on the microphone and camera and ask your questions. Give us your affiliation and your name before asking questions. We are sorry to say that President Nakanishi will need to leave 20 minutes after 6 p.m. So please keep that in your mind. We plan to end this session at 40 minutes past 6 p.m. So now I'd like to take questions. Please raise your hand if you have a question.

Also, Morimoto-san from SMBC Neko, please unmute yourself and turn on the camera and ask your question. Yes, this is Morimoto from SMBC Neko. Can you hear me? Yes, we can. I have two questions. First, It's been just one month after the start of the year, but I thought you gave us a very exciting news today. Russell, thank you for that good news. Also, regarding the capital allocation, earlier you presented, Nakanishi-san, that the strategic mandate You would like to do EX and DX, and I think you also mentioned US as the key words for your strategic M&A. So to the extent possible, can you elaborate on what kind of direction you're trying to pursue with strategic M&A? And you have roughly 500 million yen of extra cash. Is the M&A going to be similar to that size? And regarding the shareholder return policy, You mentioned that you need to revisit that. So can you also explain what you meant by that? So that's my first question. The second question is regarding Lawson. So you have chosen KDDI as a partner for the digital and the telecommunication capability, and you can create additional value, and I understand that. And in terms of really enhancing the value, I was also listening to your press conference, and I was a little bit concerned about the speed. So converging digital and the real, I think you have been saying that from October of 2019, so you've been mentioning those keywords. And after a few years, so... I think with KDDI increasing the stake from 2.1%, they will be more engaged. But can you also explain about the speed of how they will be involved? And I thought the 123.3 billion is going to be next year. And if you look at the non-cash 123 billion yen, how are you going to treat that? So this is a non-cash item, but that's my second question. Yes, thank you for your questions. Also, Morimoto-san, you said that you were really excited about the news, but you said it in a positive way, so I will not dive into that further. And regarding capital allocation and for strategic mandates, As you can imagine, I cannot elaborate any further, but it's going to be quite sizable, and that's something that we would like to challenge ourselves to execute. At this point, I cannot comment, and I cannot be ahead of myself to talk about this, but as an image. With MSCSV, we want to co-create value. And I guess it's a concept that's a little bit hard to understand. But I think now, as an image, you get a better feel. So you have the piece in the center and something that connects to that core element in the center. Do we have that or not? So previously... We had the peripheral businesses. Our 10 business groups have converged into 8 groups. But out of that, I will not say all of them, but What's in the core, if we have that piece out of that eight, so maybe six businesses can get engaged and we can build up the horizontal capability, sorry, the vertical capability. So it's not like a platform, but we want to create a domain that we can be strong in, and we want to challenge ourselves to pursue that opportunity as a hypothesis, not just in the U.S., but internationally. Also, in other regions like Europe, for any sizable deal, I think it will be overseas, particularly Europe or U.S. So not just one single deal, but we will be looking at both U.S. and Europe. And those opportunities have started to pop up in the last two years for ourselves. So for us, how much earnings capability do we have today? Also, it's like a chicken and egg story, but that will determine the size of the potential transactions. Also, at this point, I will not be able to offer you any details, so I may be a little bit abstract, but I'm trying to convey my message, so I hope that suffices your question. And regarding shareholder return, I think it's almost two years since my appointment as the president and CEO. And one of the big topics for the second year was to change the organization. So through our IR and SR activities, what I understood was, and you may say that this is like textbook thing, but the growth and return is important. Also, I already talked about the growth opportunity and for shareholder return. how do we optimize dividend and share buybacks? Also, even from your perspective, I guess you will say it's hard to see what we're trying to achieve for shareholder return. For example, in FY22, last fiscal year, we first said dividend payout will be 30% to 40%, or total payout will be 30% to 40%, and at the end, we did a share buyback of 370 billion yen. And this fiscal year, we raised the dividend to 210, or it's 70 yen after the stock split. And we first did the 100 billion yen of share buyback. And then in addition to that, we are going to do another buyback of 500 billion yen. So while monitoring the progress of the project and our investment, or we have been able to raise the earnings capability? Also, for the cash flow and the cash inflow, how are we going to use these proceeds? And also, we have the rise in the share price. Also, do we have the right balance for the dividend ratio with the higher stock price? We have to look into all of those details to consider the action to be taken. So that's the immediate challenge for us. And from the IRSR perspective, when we talk to the stakeholders, I think this is a very important element. So we are considering that. And hopefully, we will be able to present that to you in a simple way. And also, on the second point about the speed of execution, I know when you say that, how many years have we been talking about these keywords? So at this point, we have now concluded that we cannot get the answer from within. So there was a question from the freelance journalist. Are you going to delete your engagement? That is not the case. Regarding the strategic M&A, just like that, We wanted to get the missing part. First, we tried to do it by ourselves, but we were not able to achieve that, so we will have to rely on someone else as a partner. And with that collaboration, I think the companies will be better. So in that sense, we found a partner who can execute with speed, and we can have that amplifying impact through this collaboration. So this is going to be something different from what we have been doing in the past. So that's why we have invited this new partner. And the third point will be answered by Mr. Nauchi. Yes. So for Lawson, the valuation is no cash. How do we position that against the total payout? Well, the total payout, when we consider that, we look at the cash flow. And in the mid-term corporate strategy, we have committed to a total payout of roughly 40%. This is based on the profit and loss statement. So if we have some non-cash item, we will not be changing our policy. I see. Thank you very much.