Mitsubishi Corp Ord

This is Nakanishi, President of Mitsubishi Corporation. Thank you very much for taking the time to attend our company's fiscal 2024 Q2 earnings briefing. First, I would like to explain the highlights of fiscal 2024 Q2, as well as talk about the progress of various initiatives aimed at the next stage of growth. Please turn to Page 2 of the presentation material. First, regarding the financial results, consolidated net income in fiscal 24Q2 was 618.1 billion yen. The progress against the full-year guidance is 65%, primarily driven by major gains on revaluation in accordance with application of the equity method to Lawson and the gain on the sale of assets in the metallurgical coal business with two coal mines being sold. Given the current situation where uncertainty about commodity markets and the business environment remains, we have revised our outlook for each segment. However, we'll maintain the full year guidance of 950 billion yen. Specifically, The minerals resources group has been revised downwards due to the decline in the metallurgical coal prices in the first half of the year and the revision of the price assumptions for the second half of the year. While executing on the value-added cyclical growth model, the food industry group has been revised upwards due to the recording of a gain on sale that was not accounted for in the initial forecast. The details will be presented later by our CFO, Mr. Nochi. Next, this page is an update on various initiatives. As explained at the earnings briefing in May, we have positioned this fiscal year as a year in which to focus on the next stage of MC's growth. Specifically, we will first reinforce or maintain existing earnings levels on current projects secondly we will focus on enhance maximize profitability of investments in progress and thirdly accelerate develop new investment opportunities so we are focusing on these three aspects this time I will talk about some examples of reinforce and enhance that have progressed in the first half of the year.

First, reinforce. The first example is initiative to stabilize meteorological coal operations. As we have explained at the earnings presentation in May in the metallurgical coal business, we have been conducting focused measures from fiscal year 2024 to 2025 to restore capacity to 43 to 45 million tons on 100% BMA basis. To stabilize operation in the mid to long term, we will be accelerating pre-stripping, which is the removal of overburden on top of the coal seams and to build up the inventory of raw coal. These two will be very important. These measures are proceeding as planned. Fiscal year 2024's production guidance remains unchanged from the initial projection, roughly the same as last fiscal year, and production for the first half was in line with the plan the state of queensland in australia is entering the rainy season of summer but we will continue to work towards steadily achieving this year's production plan while stabilizing the overall operation for the mid to long term another initiative is to maintain and expand production in the existing lng business The Malaysia Energy Project is one of the world's largest projects, which we have been working for a long time with Petronas, a state-owned oil company. we have signed an agreement with Petronas to extend the investment in the Diva project, which is coming close to the expiration, and re-enter the Tiga project, which already has expired. By extending and re-entering existing projects that has a good access to the Asian market, We will solidify our earnings coming from the LNG business and contribute to the stable supply of energy. The next examples will be two coming from Enhance. First is collaboration with KDDI to enhance Lawson's corporate value. The transaction for the joint operation of Lawson with a strategic partner, KDDI, was completed this September. Towards the transformation for the next generation convenience store and to respond to the rapidly changing business environment, we will enhance real and tech convenience by not only leveraging the customer base that KDDI has, but utilize telecom and digital technologies. Another example is efforts to complete the construction of LNG Canada. This is the first large-scale LNG project for Canada. The construction is already 95% complete. And by the middle of next year, production will start. And we are now conducting test operations. With the completion of this project, our LNG equity production capacity will be increased by 2 million tons per year. This is all from me. I will hand it over to Mr. Nauchi, CFO, to talk about the financial results. Thank you very much.

This is Nauchi, CFO. I will provide some supplementary explanations regarding the earnings. Please turn to page 6. Consolidated net income for Q2 fiscal 24 increased by 152 billion yen year-on-year to 618.1 billion yen due to factors such as the revaluation gain on Lawson, the gain on sale of the two coal mines in the metallurgical coal business, and the impact of the weaker yen. As for the full-year guidance, as explained by President Nakanishi at the beginning, we are maintaining the 950 billion yen forecast. However, we have revised forecasts upward for the Environmental Energy Group and the Food Industry Group, while downward revisions were made for the Mineral Resources and Materials Solution Groups in light of changes in market conditions and the business environment. Please turn to page 7 next. I will now explain the progress made as of Fiscal 24 Q2 in relation to the cash flow allocation plans set forth in the Medium-Term Corporate Strategy 2024. Cash inflows for the current period amounted to 724.7 billion yen, comprised of underlying operating cash flow of 527.3 billion yen and cash flow from divestitures of 197.4 billion yen. In addition to the steady generation of underlying operating cash flow in each business, divestitures are also progressing smoothly, including the sale of coal mines in the meteorological coal business and proceeds from the sale of assets associated with asset replacement. Divestitures include a negative factor of approximately 460 billion yen due to the decrease in cash and deposits held by Lawson as a result of its transition from a subsidiary to an equity method affiliate. On the other hand, we made investments of 589.9 billion yen, and as a result, adjusted free cash flow was 134.8 billion yen. As for the cumulative results of the medium-term corporate strategy 2024, underlying operating cash flow was 3 trillion yen and divestitures were 1.7 trillion yen, and we are making steady progress towards our forecasts. Investments have also been steadily accumulating, reaching a total of 2.4 trillion yen, and the cumulative total of adjusted free cash flow is 2.2 trillion yen. The breakdown of the investment plan and the progress of the quantitative targets are shown on pages 10 and 12, respectively, so please refer to them later.

Next, let me explain summary results by segment. Please turn to page 8. I will focus on segments where there were large changes year over year. First, third line from the top, minerals resources. Although there was a decline in the total volume and decrease of market prices in the Australian metallurgical coal business due to the divestiture of two Australian metallurgical coal mines and higher market prices in the copper business, consolidated net income increased 61.6 billion from last year's 134.1 billion to 195.7 billion yen. Next, third line from the bottom, food industry. Through the divestiture of KFC Holdings Japan and Princess, Consolidated net income recorded ¥60.4 billion, a ¥35.3 billion increase year-over-year from ¥25.1 billion. Going down one line, SLC, although there was an absence of gain on sales affiliate from the previous year, there was a revaluation gain due to the reclassification of Lawson to an equity-based affiliate, which led to an increase of net income ¥87.3 billion from last year's ¥69 billion to ¥87.3 billion. Next. I would like to explain about the full year forecast by segment. Please turn to page 9. As explained earlier, a full year forecast is unchanged at 950 billion yen, but we have reviewed our forecast in some segments. I will explain about the segments which have the underground sizable revisions, which will be three. In environmental energy, although there was a decrease in the market prices in the North American shale gas business, on the positive side, there were factors such as higher market prices in LNG sales business, dividend income from the LNG-related business, and the revision of the depreciation method in the Asia Pacific LNG business. Due to these factors, we have made an upward revision of 24 billion yen to 175 billion yen. In the mineral resources business, as the market prices decreased in the Australian meteorological coal business, we have revised the forecast downwards by 71 billion yen to 215 billion yen. Third line from the bottom, food industry. Although the farming condition was challenging and the market slowed down in the salmon farming business, there were contributions coming from the divestitures of KFC Holdings and Princess Inc., As such, we have made an upward revision from our initial forecast by 23 billion yen to 89 billion yen. Please refer to page 34 for assumptions used for the forecast. Lastly, I would like to follow up on the changes of disclosure under Part 2, Segment Performance. Please refer to page 13. In consideration of a continued execution of the value-added cyclical growth model through capital recycling and associated gains or losses, we have decided the presentation of non-recurring items will be revised from fiscal year 2024 second quarter and onwards. Going forward, non-recurring gains and losses attributable to capital recycling shall be designated as capital recycling gains or losses, while other items deemed as pure one-offs will be designated as one-time items. Gains and acquisitions and divestitures in asset turnover business that were not previously included in non-recurring gains and losses are also included in capital recycling gains and losses.