Sojitz Corp Unsp/Adr

Good afternoon. Thank you very much for joining us for the earnings briefing of Sojis Corporation for the first half of the financial year ending March 2021. This is Masayoshi Fujimoto, CEO. I am joined by our CFO, Sage Tanaka, who will speak later. Profit for the period attributable to owners of the company in the first half was 30 billion yen or 30% of the full-year forecast. In the first half, some of the restrictions placed on movement of people and commodities in response to COVID-19 were lifted and economic activities were reopened. However, recovery to pre-pandemic levels have yet to come and there are lingering concerns over possible further stagnation due to a second wave of infections. In the second half, there are still uncertainties associated with the US presidential election, increasing tension between China and the United States, and resurgence of COVID-19 cases in some countries, prompting moves to re-institute restrictions. The business environment is therefore expected to remain challenging. Against that backdrop, progress against the full-year forecast differs among geographical regions and segments, but we are maintaining the consolidated earnings forecast of 30 billion yen for the full year. More details by business segment will follow later. The interim dividend will be 5 yen per share as originally planned. The annual dividend forecast remains unchanged at 10 yen per share. Slide 3 shows a breakdown by segment. Let us go through the segment forecast revisions. Aerospace and transportation segment is downward revised from a ¥6 billion forecast to ¥5 billion. It reflects the decline in aircraft parts demand due to prolonged travel restrictions and delays in railroad construction projects in India due to the lockdown. Retail and lifestyle business is also downward revised from 5.5 billion yen to 4 billion yen, reflecting the impact of closure of commercial facilities and stores due to COVID-19 and prolonged stagnation in domestic consumer demand. On the other hand, machinery and medical infrastructure is upward revised from 3.5 billion yen to 4.5 billion yen, reflecting strength in industrial machinery transactions in China in the first half. Food and agriculture business is also upward revised from 3 billion yen to 4.5 billion yen, reflecting strong first half performance thanks to overseas fertilizer business. Slide four summarizes the impact of COVID-19 on our business during the first half and what we assume for the second half. With regard to SG&A, cost reduction is progressing as planned. In the second half, we expect some cost increase compared with the first half as travel restrictions are eased, but cost reduction efforts will continue in earnest. We are currently seeing moves to reinstate lockdowns in Europe in response to an apparent second wave of infections. At this moment, we do not expect this to have a direct and material impact on our earnings, but we will continue to carefully monitor the situation. Slide five describes cash flow management. Core cash flow in the first half was positive, and aggregated core cash flow during the current three-year medium-term management plan, or MTB 2020, is positive too. As shown in the slide, we intend to maintain that positivity for the whole of the three-year period. MTP 2020 seeks to achieve steady growth. As part of it, investments and loans for the current year is budgeted at 90 billion yen. This will bring the three-year total to around 260 billion yen. 240 billion yen has already been executed or formally approved. Slide 6 shows earnings contributions from initiatives under the previous MTP or MTP 2017 and from the current MTP 2020. This financial year, we expect total contribution from investments and loans in the amount of 9 billion yen centered around non-resource businesses. Let me explain this further on the next slide. Slide 7 shows how we expect contributions from investments and loans this year. We expect steady earnings contribution from investments and loans executed under the previous MTP 2017 in infrastructure-related projects, including renewable energy and the hospital project in Turkey. The difference from the 12 billion yen planned back when we announced MTP 2020 comes from contributions recognized ahead of schedule in FY 2019. From investments and loans under MTP 2020, we expect a contribution of 2 billion yen. Contributions to earnings so far are mixed. Renewable energy projects and natural gas-fired power plant business in the United States are already contributing, and we are partially selling down shares in these operations according to plan to keep turning the sustainable growth cycle. On the other hand, the coking coal business in Australia and the paper manufacturer in Vietnam are experiencing delays in starting up and therefore are behind schedule in terms of earnings contribution. Efforts are underway to address issues and accelerate profitability. Slide 8 is on dividends. Our policy remains unchanged with a focus on stable and continuous payouts for a consolidated payout ratio of around 30% during this MTP period. After Q1, we announced an annual dividend forecast of ¥10 per share, in line with which we have now decided on an interim dividend of ¥5 per share. From slide 9, we discuss our forward-looking initiatives. We are currently observing a big change around trading companies like ours, including digitization, the environment, and changing values. Our response is to expand into new business areas that utilize emerging technologies such as artificial intelligence and IoT, and to acquire and strengthen functions. Some examples are shown on the slide, such as telemedicine and healthcare, decentralized energy development, automobile parts quality inspection, and agricultural platform. Another important focus is on human resources, which drives the creation of new value. we have begun what we call the Hassojits project. Hassojits is a cross between hasso, the Japanese word for idea, and the company name Sojits. Young people work in teams, free up their minds and develop fresh ideas and turn them into reality, working across departmental lines and generations using a backcasting approach, starting from what kind of a trading company we want to be in 2050 and working towards that. Slide 10 shows initiatives for sustainability. Guided by the sustainability challenge, which is our long-term vision, we are making various efforts to contribute to a low-carbon or decarbonized society. We are proud of the third-party recognitions we have received, some of which are shown on the slide. Under the new normal, we are flexibly accommodating our workforce's needs to allow for working either at the office or from home, providing a work environment in which diverse people can leverage their capabilities in full and thereby contributing to corporate value. Let me close by hoping for an early end to the COVID-19 situation and wishing all our stakeholders good health. Thank you very much for your attention. Now I will give the microphone to our CFO. Good afternoon. This is Sage Tanaka, CFO. I'd like to use two documents as usual, one titled Highlights of Consolidated Financial Results for the First Half Ended September 30, 2020, IFRS, and the other that says Supplementary Materials. Let us begin with the middle block of the first sheet where it says Consolidated Statements of Profit or Loss. Revenue, which corresponds to JGAAP sales during the first half, was 744.6 billion yen, down 149.2 billion yen year-on-year. The main difference came from the segments shown in the column to the right. The automotive segment was down due to a major decline in the number of cars sold due to COVID-19-related lockdowns across the world. The chemical segment was hit by lower methanol prices and decline in synthetic resin sales volume in Southeast Asia. Metals and mineral resources segment was hit by the decline in coal prices. For gross profit, again the decline in the three segments of automotive, chemicals, and metals and mineral resources were significant. Gross profit came down by 25.2 billion yen year-on-year to 84.5 billion yen. SG&A came down year-on-year by 6.6 billion yen to 79 billion yen. Over the full year, we are planning to reduce SG&A by 8 billion yen year on year. Reductions in the second half may be smaller than the first half as we resume business travel, but we are continuing steady progress here. Moving down to other income and expenses, which are non-recurring items. In the first half, we booked gain on sale of assets owned by an affiliate. We also booked, in Q1, gain on partial sale of a natural gas-fired project company in the United States. Thanks to these, the total of other income and expenses came to a net income of 3.7 billion yen. With regard to financial income and costs, interest expenses improved by 800 million yen year on year, but dividend received came down so that the net total of financial income and costs only improved by 300 million yen to a net cost of 1.8 billion yen. Share of profit or loss of investment accounted for using the equity method came down by 8.6 billion yen to 4.6 billion yen due to significantly lower profit from a steel operating company. Profit before tax came to 12 billion yen. After income tax expenses, profit for the period came to 10.5 billion yen down by 21.1 billion yen year on year. The line item highlighted in pale blue, profit attributable to owners of the company, came down 20.4 billion yen year on year to 9.1 billion yen. Against the full year outlook of 30 billion yen, this figure stands at 30%. Now let's move to the right side block under consolidated statements of financial position. At the end of September, total assets came to ¥2,154.7 billion, which is down ¥75.6 billion from the end of March. Most of the difference comes from the decline in transaction volume for chemicals and automotive, which significantly brought down trade and other receivables. Going down to the liabilities section. Total liabilities at the end of September came to ¥1,547.3 billion, down ¥61.1 billion from the end of March, due to the decrease in trade and other payables for the same reasons as total assets. Down to the equity section. Total equity attributable to owners of the company came down from the end of March by 9.6 billion yen to 569.5 billion yen. That's due to profit for the period in the first half of 9.1 billion yen, dividend payments, and the share buyback in Q1. Further down, there are six key performance indicators. The net debt-to-equity ratio came to 0.93, down by 0.13 from the end of March due to the decrease in net interest-bearing debt. At the bottom of the page, we show cash flows. As we explained earlier, trade and other receivables decreased and cash flows from operating activities was a net inflow of 96.9 billion yen. Cash flows from investing activities came to a net outflow of 4.3 billion yen as in the first half, new loans and investments only amounted to around 18 billion yen. The resulting free cash flows came to a net inflow of 92.6 billion yen. Further down, we have two lines showing core operating cash flow and core cash flow, both of which are net inflows. Now let's turn to the second sheet, which says supplementary materials. I will focus on segments for which we have revised the full-year forecast reflecting first-half results and the current outlook, or those that posted significant year-on-year declines or whose progress against the full-year forecast is notably low. First, the automotive segment. In the first half, sales came down as a result of COVID-19 and associated lockdowns forcing sales locations to be closed down. The segment posted a loss of 1.6 billion yen. However, in Q2, there was significant recovery at dealers in North America, in Puerto Rico, and Thailand, and quarterly results turned profitable. We therefore maintain the full-year forecast of 1 billion yen. For aerospace and transportation project, as in the case of automotive, COVID-19 had a significant impact. air travel plunged and wiped out aircraft-related demand. The segment posted a loss of 300 million yen in the first half. In the second half, negotiations are continuing for the large deals that have significant impact on full-year results, and we do not see any need to discount them at this point in time. However, demand for the parts-out business for aircraft has plunged as fewer aircrafts are being operated due to lower travel demand. and the delay in freight railroad construction projects in India caused by the lockdown will be very difficult to make up for. We have therefore downward revised the full year forecast by ¥1 billion to ¥5 billion. On the other hand, for the machinery and medical infrastructure segment, The hospital PPP project in Turkey is delivering stable earnings, and the Chinese economy is recovering ahead of other parts of the world, so that infrastructure-related businesses, such as semiconductor manufacturing equipment and bearings, were strong. Profit for the first half came in at 2.2 billion yen, up from the same period last year. We have therefore upward revised the full-year forecast by 1 billion yen, from 3.5 billion to 4.5 billion yen. two lines down to metals and mineral resources. As we wrote in the column titled Main Factors Behind Difference, steel demand declined, such as for use in automotive, the coal market stagnated, and transaction volume fell. The segment posted a loss of 2 billion yen, down 11.8 billion yen from the same period last year. After Q1, we downward revised the full-year forecast for this segment from 13 billion yen to 3 billion yen. In the latter half of Q2, steel demand showed a rapid recovery and the coal market also bottomed out. We are therefore maintaining this full-year forecast of 3 billion yen. Another two lines down to foods and agriculture business. Unlike last year, there was good rainfall during the fertilizing season and raw material prices were stable so that overseas fertilizer business was strong. The segment posted a profit of 4.3 billion yen, up 3.1 billion yen year on year. The second half is a low-demand season for fertilizer business so that we cannot expect further growth here, but at the same time we do not see any particular concerns either. We have therefore upward revised the full-year forecast from 3 billion yen to 4.5 billion yen to reflect the strong performance in the first half. One lying down to retail and lifestyle business. In the first half, there was gain on sales of shopping mall owned by an affiliate, thanks to which the year-on-year decline in profit was limited to 200 million yen. However, due to COVID-19, the domestic consumption is sluggish and that impact is material. In the second half, we are still planning for some gain on asset replacement, but there are uncertainties about the speed and strength of recovery in consumption. We are therefore downward revising the full-year forecast by 1.5 billion yen to 4 billion yen. Last but not least, let's look at industrial infrastructure and urban development. In the first half, this segment posted a loss of 600 million yen, but this was only because we wrote off some losses related to sluggish condominium sales in Japan in an expedited manner. We are still on track to achieve the 500 million yen full-year forecast, particularly as this year, 90% of deliveries of overseas industrial parks are to take place during the second half. With this, I conclude my part of the presentation. Thank you for your kind attention.