Toyota Tsusho Corp Ord

I will now explain the results and forecasts for fiscal year 2024 and fiscal year 2025. First, I have prepared a summary on the first page. Despite favorable exchange rates, production volumes remained sluggish. However, we were able to achieve a record high profit for the fourth consecutive quarter, which I consider a positive outcome. Turning to the next page, the income statement indicates that the exchange rates for both the dollar and the euro are 8 yen weaker than the previous year as shown in the top right corner. The impact of the yen's depreciation on the currency is shown in the right column. Regarding the company's financial performance, revenue reached 10,309,500,000 yen. Gross profit amounted to 1,121,1 billion yen. However, operating profit fell slightly below 500 billion yen, reaching 497.1 billion yen. Profit stood at 362.5 billion yen. Each of these figures represents a new record high. Notwithstanding the exclusion of the impact of the exchange rate, on a net profit basis, there was a 10.3 billion yen increase due to the exchange rate. However, when viewed in total, there was an increase of 31.1 billion yen. We believe that this growth exceeded the currency impact. The subsequent page presents a multi-chart waterfall model, and on an operating profit basis, there was an increase of 55.6 billion yen. The foreign exchange rate saw an increase of 14.8 billion yen, and in a circular economy business, a negative figure was recorded in the previous fiscal year, indicating a reversal in that sector. The metal plus business demonstrated robust performance propelled by advantageous market conditions. Regarding demand, the lithium-related sector demonstrated a decline in demand. However, other segments exhibited growth, leading to a net increase of 6.5 billion yen. Automotive retails also increased significantly, especially in Africa, resulting in an increase of 10.9 billion yen. As indicated in others, the top line of finance income and costs show a dividend income of 8.5 billion yen. During that period, under review, we divested all of our four U.S. gas power generation businesses, resulting in a net increase of 6.2 billion yen. For the sake of financial record-keeping, the increased decrease factors are presented separately as gains from the sale of the U.S. power generation business and losses related to the U.S. power generation business. The decline in lithium prices has resulted in a 3 billion yen decrease. The combined impact of these factors resulted in a net increase of 10 billion yen. On page 6, we categorize these as one-off gains and losses. For the current period, this includes 10 billion yen from the sale of the U.S. power generation business I mentioned earlier. Page 7 for information regarding profit analysis by division. Unfortunately, compared with the same period last year, Only the circular economy reported a loss of 3.1 billion yen. This was mainly due to poor market conditions of lithium, paint recycling, and aluminum spreads, which resulted in a loss for this division alone. It should be noted that other divisions were also affected by currency fluctuations. Despite these challenges, we are confident that we have achieved organic growth. Specifically, in Africa, we have achieved a substantial increase in net profit, reaching nearly 10 billion yen. The balance sheet is located on the next page, page 8. As illustrated in the upper right corner, the exchange rate remained relatively stable with a yen appreciating by approximately 1 yen. In terms of total assets, my approach is to maintain a healthy balance and avoid excessive growth. Despite the exchange rate remaining stable, I believe we have successfully managed our assets. In terms of inventories, we were able to compress them from the previous fiscal year's peak, which contributed to the increase in revenues. Net worth increased by 157.1 billion yen, while net interest bearing debt was reduced by approximately 136 billion yen to approximately 1 trillion yen. Net DER has decreased to 0.39, indicating we need to borrow more to invest and increase returns because the balance sheet has become really pristine. In terms of cash flow, the previous fiscal year's operating cash flow of 542.1 billion yen was slightly excessive as it included the sale of inventory and adjustments to accounts payable and accounts receivable. In the current fiscal year, however, such factors were minimal, and we were able to generate 511.8 billion yen in cash flow. It is encouraging that we have achieved a positive operating cash flow of over 500 billion yen for two consecutive fiscal years. Investment cash flow is influenced by various factors, including asset sales and time deposits, which can impact the figures. As I will explain on the next page, gross investment for the previous fiscal year was 327.7 billion yen, and for the current fiscal year, including the elematic portion, it was 323.2 billion yen. We have continued to invest over 300 billion yen, as we believe are largely on track with our plan. The free cash flow after dividends also demonstrated a substantial positive trend. Regarding cash flows from investing activities, the figure of 291.7 billion yen shown here increases to 323.2 billion yen when elematic figures are included. Regarding overall allocation, the core value, or what we consider as core value businesses, remains the primary focus. Our primary areas of focus include Africa and automotive-related businesses, which account for approximately 150 billion yen of the allocation. Social value investments include capital increases for the battery plant at TBM&C in North America and investments in businesses related to social care, primarily in India. The recently announced recycling business in North America will also fall under this category, with the figures expected to be reflected in the next fiscal year. With respect to renewable energy-related investments, we are allocating capital to enterprises involved in the feed-in tariff. FIT systems for onshore wind power generation projects that we have been pursuing for some time, in addition to solar power generation projects led by Terrace Energy Corp. I will provide a brief explanation for each segment. The Metal Plus division reported an operating profit of 9.8 billion yen, marking a significant improvement compared to the previous fiscal year. The foreign exchange rate had a positive impact of 2.0 billion yen, and markets and prices had a positive impact of 5.2 billion yen, Overall, we're pleased to have achieved margin improvement despite stagnant growth in automobile production. The circular economy division is addressing a range of challenges, including lithium, battery materials, aluminum, and chemical-related bio-businesses. Achieving premiums in these areas remain challenging, prompting our decision to make upfront investments. Notwithstanding, operating profits saw a 12.1 billion yen increase compared to the previous fiscal year. This is partly due to the recovery from the decline in lithium prices in the previous fiscal year, but we were able to achieve these results despite the difficult circumstances. The supply chain division is a solid segment, operating profit increased by 6.4 billion yen. This division was previously known as the global logistics division. While it initially managed to gain a profit of 10 billion yen, it has since demonstrated significant growth, achieving a profit of 49.2 billion yen. This substantial increase is a notable achievement. This underscores the strength of Toyota Tsusho and the growth of our organic business. The North American automotive-related business segment has achieved profitability and it is experiencing significant global expansion. The mobility division exhibited a mix of positive and negative factors, yet operating profit grew by 2 billion yen compared to the previous fiscal year, China is currently facing tough sales conditions for Japanese manufacturers, but within our business, exports and sales of KD knockdown parts for land cruisers for inland China increased significantly, contributing to positive operating profit. Conversely, the performance in the Caucasus market was suboptimal, and given its strength in the prior fiscal year, it experienced a decline year-on-year. Overall, it was ±0. The Green Infrastructure Division maintained its position from the previous fiscal year, reporting an operating profit of 600 million yen. Regarding content, the renewable energy sector of EURUS experienced a 2 billion yen declining operating profit, which was unfavorable. However, the machinery demonstrated growth, contributing to a favorable overall performance for the division. As stated on the page 16, the Digital Solutions Division is involved in the business of semiconductors. Nexty, Elematic, and Tome and Devices Corporation. In-vehicle electronics-related business has experienced challenges in recent months, but indications finally suggest a recovery in March. Still, the in-vehicle electronics-related business incurred a loss of 2.3 billion yen. However, other businesses performed well. and there was a one-time loss from a previous fiscal year due to the bankruptcy of FCNT, a company with which Torment Devices had business ties. This led to a positive operating profit of 5.8 billion yen. Absent this key factor, the performance would have been essentially driven by share strengths. The lifestyle division also maintained its strong performance from the previous fiscal year, while the Brazilian company Nova Agri, which had performed well last fiscal year, saw a decline this fiscal year due to the strong performance in the previous year. Menu, an edible oil company, which had performed poorly last fiscal year, saw an increase this year, resulting in an unbalanced result. The Africa division demonstrated notable success with operating profit increasing by 22.8 billion yen. Currency effects contributed 5.2 billion yen due to the increase in operating profit. In the automotive sector, West Africa demonstrated resilience, and Eastern and Southern Africa, excluding South Africa, also exhibited robust performance. I believe that the primary factors contributing to this growth are the expansion of motorization, changes in the model mix, and the extension of their value chain. Regarding South Africa's outlook, it appears to have reached its lowest point and recovery is projected for the subsequent fiscal year. In the non-automotive sector, we're expanding in Africa in the pharmaceutical and healthcare sectors as well as in infrastructure projects with U.S. energy. Solar power generation in Tunisia is also making a positive contribution. Regarding the forecast and target for fiscal year 2025, we received numerous inquiries about this during the earnings briefing. However, given the temporary exchange rate of 139 yen per dollar, we have revised our plan to 135 yen, which can now be considered conservative. Consequently, we are anticipating a yen appreciation of 18 yen from this fiscal year. with an estimated negative impact of approximately 23 billion yen. Regarding the Trump tariffs, which are subject to frequent changes, it is unclear how they will develop. However, looking at the broader US economic landscape, our primary focus remains on the logistics of key components that we need to supply. Even in the event of tariffs being imposed on these components, will keep supplying as long as we do not incur losses. Additionally, we are assessing the implications of the suspension of U.S. aid to Africa through the U.S. Agency for International Development , which we estimate will result in a reduction of over 5 billion yen in profit. Two downward factors totaling 28 billion yen are due to the strong yen and tariffs, but there is also the possibility of extraordinary gains. We have forecasted a profit of 340 billion yen for the next fiscal year, demonstrating our strong commitment. Naturally, a weakening of the yen or a lack of impact from tariffs would represent a favorable outcome. This page presents the earnings forecast by division. It includes fiscal year 2024 results, fiscal year 2025 forecast, forex effect, and the effect of a gain loss. However, the Trump tariff portion is not included. Depending on the policies of the Trump administration, the actual value could increase. This is a topic that will likely be covered in further detail in the Q&A session, and we'll address it accordingly. With respect to the shareholder return policy, I have consistently maintained that we will not repurchase our own shares as long as I live. However, the CEO may change, and given the significant improvement in the balance sheet, maintaining this portion may become challenging. Consequently, we are currently approaching share repurchases with a more favorable outlook. as previously mentioned, were dedicated to the principle of progressive dividends, and our objective is to attain a consolidated payout ratio that exceeds 40% over the course of the mid-term business plan period. Next page, please. This will mark 16 consecutive years of increasing profits and dividends, and we can finally target 110 yen. The 105 yen payout for this fiscal year will be finalized, if approved, at the shareholders' meeting. Next fiscal year's profit is expected to be reduced to 340 billion yen, even though a higher payout ratio. However, I believe it is important to increase the progressive dividend from 105 yen to 110 yen and aim to achieve a consolidated payout ratio of 40% as soon as possible. Thank you very much. Toshimitsu Imai, the president and CEO, will then proceed with a review of the mid-term business plan covering the period from fiscal year 2025 to 2027. Yes, I will now present the new midterm business plan for fiscal year 2025 to fiscal year 2027. First, I will present a review of the midterm business plan fiscal year 2022 to 2024 and a summary of quantitative targets from the top profit of the year. To the bottom, shareholder returns. We have achieved all of the quantitative targets that we promised regarding shareholder returns. As Iwamoto previously stated, we have maintained our progressive dividend policy. If approved at the shareholders' meeting, the payout ratio is expected to increase to 30.6%. Next page, please. I'll now briefly explain the new midterm business plan. First of all, we implemented a new management structure in April. As I stated during the press conference, we will continue under the themes of carrying on and higher dimension. First, regarding the company's core MVV, Mission Vision Value, which was firmly established during the former president Kashi Tani's tenure, we will continue to carry on the three pillars of passing on a better earth to the children of the future, be the right one, and Toyota Tsusho DNA Humanity Gambality Beyond. On top of that, we are committed to leveraging this foundation to generate new value. I will now proceed to outline the quantitative objectives of the midterm business plan fiscal 25 to 27. Regarding return on equity, ROE, which is currently at a relatively high level of 14.2%, we aim to increase it to 15%. The cumulative investment over three years is targeted at 1.2 trillion yen. Regarding the consolidated dividend-payer ratio, while Iwamoto still lives and is fine, However, we aim to implement share buybacks as soon as possible and achieve 40% at an early stage. To achieve these quantitative targets, we will pursue a higher dimension in four areas. Some people may not be familiar with the term higher dimension, so I would like to explain my interpretation. The term higher dimension is used to denote growth that extends beyond conventional organic growth. The four areas are from top to bottom, growth, investment, capital policies or capital allocation, human capital and organization, and sustainability management areas. By implementing a higher dimension in these four areas, we ultimately aim to enhance corporate value, which is on the far right. In this discussion, our primary focus will be on PBR. Even though Toyota Tsusho's PBR went above 1.5 at some point, it has recently experienced a slight decline. In my personal view, given Toyota Tsusho's demonstrated growth potential, there's significant room for enhancement. However, This is a result, so we will not set a specific target for PBR itself. Instead, we will concentrate on investing in and developing the four areas on the left to ultimately increase corporate value. Next page, please. I will now briefly explain each of the four areas. First and foremost, we prioritize growth investments. The small picture on the lower left shows the current situation where Toyota Tsusho has unique strengths in the automotive industry. In Africa-centered core values, in resource circulation areas, and other social values, and in renewable energy and other nature values, this concept, which we refer to as unique competitiveness, is a distinctive attribute that sets Toyota Tsusho apart from other trading companies and competitors in the industry. Please allow me to elaborate. For instance, as Iwamoto previously stated, we have divested ourselves from the petrochemical industry. Our primary focus does not lie in the extraction from the earth except for lithium and iodine. Instead, we are recycling metals that are already present on the Earth's surface. We're interested in pursuing business opportunities that convert solar and wind energy into usable forms. While many Japanese companies shifted their focus to China in the 2000 and 2010s, we chose to invest in Africa. We have established a unique competitive advantage in Africa. Moving forward, we intend to bolster this unique competitiveness through strategic growth investments. The second is to elevate our synergies to a higher dimension, such as elevate our synergies of social value and nature value to a higher dimension. To illustrate this point, I'll provide some examples. Next page, please. First, growth investments, examples of elevating our unique competitiveness to a higher dimension. Toyota Tsusho's most notable feature is its automotive business, as outlined at the bottom. We are involved in a diverse array of businesses across the automotive industry, from the upstream to the downstream sectors. A substantial portion of our current revenue is derived from these operations. In the meantime, the automotive industry is undergoing a transformative shift, with the mobility sector itself being described as being elevated into a new dimension. In this context, we are transforming materials into recycled materials. producing green steel, leveraging DX to optimize the supply chain, and undertaking the data center and connected businesses to support software-defined vehicles. Our objective is to elevate our business to a higher dimension in these areas and establish ourselves as a leader in the next-generation mobility society. The next step is nature value. Our current holdings include Euras, Japan's largest onshore wind power company, and Terrace, a major player in the solar power industry. On April 1st, we completed the integration of these two companies. And this newly integrated company will leverage the expertise of Terrace, which was previously a subsidiary of SoftBank Energy, to introduce an AI-powered energy management system called Reera and enter the energy management business. Our primary geographic focus has been on Japan, the U.S., and Europe, but we're now expanding our renewable energy business development into Africa and emerging markets. A key initiative in this strategy is the EOLAS Renewable Energy Project in Africa, a joint venture between CFAO and ERAS. These are examples of elevating our synergies to a higher dimension. In this respect, our main current businesses include the Arterial businesses of the automotive industry, which is our core business, these include materials and parts supply. Toyota Tsusho has a long-standing commitment to resource circulation in Japan dating back to the 1970s. As previously announced in early March, we have entered into a merger agreement with Radius Recycling, the largest recycling company in North America. Integrating this initiative with our existing strong arterial businesses in North America will create a closed-loop system and position our business to leverage synergies in the world's largest mobility market. The North American closed-loop market is many times larger than Japan. Next, this is regional synergies. In the lower left corner, you will see the comprehensive businesses, including mobility and healthcare that we're developing in Africa. Our company has a long-standing history of involvement in the automotive sector and the wellness industry in India. Moving forward, our objective is to establish connections between Africa and India. Currently, approximately 20% of Toyota vehicles sold in Africa are imported from India, and we intend to expand our trade relations to include pharmaceuticals from India. Furthermore, We are planning to expand our recycling business, which was initially established in India, to the African continent. It is essential to develop a business model that incorporates both Africa and India. We also want to expand our south business, which is strong in the southern hemisphere and offers low-cost, long-life operations from India and Africa to the broader global south, particularly Brazil, Indonesia, and Vietnam, which are growing markets. Next, while continuing these investments, we'll also focus on reaping the benefits of past investments over the next three years to steadily increase profits. As Iwamoto mentioned earlier, we have assumed a conservative rate of 135 yen per dollar for this period, which is why we have tentatively set short-term profit of 340 billion yen. However, we believe this is upside potential. Over the next three years, we will also take into account the growth of emerging markets such as Africa and set the profit target for fiscal year 2027 at 450 billion yen, aiming to increase each of core value, social value, and nature value. While the payoff may be some time in the future, we aim to invest 1.2 trillion yen in growth over the three years period. This investment will be balanced between core value, social value, and nature value, with a regional focus of at least 400 billion yen on global south, centered on Africa and India, and potentially more depending on circumstances. Next, please. We have established internal standards for current ROIC, return on invested capital, and targets for core value, social value, and nature value. At present, ROIC for core value is very high, while nature value is underperforming. Given the differing time frames, we will initially be allocating investments with targets of 15%, 10%, and 5% for the three values. If you ask whether the target for nature value should remain at 5% indefinitely, we intend to pursue business initiatives that would allow it to catch up with social value and core value in the medium to long term. As we pursue growth investments, we also proactively allocate management resources. We have categorized businesses into four quadrants using ROIC and competitiveness on the vertical axis and CAGR and growth expectations on the horizontal axis. We're currently reevaluating the business in the lower left quadrant, which are restructuring businesses. Specifically, we are firmly implementing two activities for these restructuring businesses. First, we have discussed in the management the principle of discontinuing businesses that are identified in the upper left as businesses to restructure. Some examples are listed in the lower right corner, such as withdrawing from the fossil fuel-related power generation business, the mobile phone sales business, the LCD panel manufacturing business, and the data center business in Africa. In addition, in our African business regions, there were many isolated areas, such as French Guinea. As a result, we have significantly withdrawn from those areas and are redeploying. that feed up funds and personnel into growing areas. Another activity to consider is the reduction of low-profit companies, as illustrated in the lower left. Due to the long tail effect, Toyota Tsusho Group subsidiaries such as Euros Energy and Sefao are generating significant profits. However, the group has over 1,000 subsidiaries, and many of them fall into the category of small companies with less than ¥100 million in equity net profit after tax, as shown here. We are currently assessing the medium-term growth potential of these companies and have initiated the withdrawal process from those that are not expected to achieve medium-term growth. This is an integral part of our company's structure, and we are committed to enhancing the reallocation to ensure ongoing investment and growth. Next, the second of the four areas which was explained earlier is that over the three years, we aim to generate operating cash flow of 1.4 trillion yen, of which 1.2 trillion yen will be allocated to growth investments. Furthermore, we will allocate more than 500 billion yen to shareholder returns with the aim of strengthening our dividend policy. In addition, as Iwamoto said, the balance sheet is pristine now and the net DR is below 0.4. We will allocate funds appropriately for both investments and shareholder returns and continue to manage funds the net DR, and the range of dou more than 0.8 times. Next page, please. This aligns with previous discussion, and from fiscal year 2025 to 2027, we will maintain the progressive dividend policy. We have consistently maintained the progressive dividend, and if we continue it through fiscal 2027, it will be 18 consecutive years. will aim to continue their progressive dividend at least until the 18th consecutive year and strive to achieve a consolidated dividend payout ratio of 40% or more quickly, including share repurchases. And this is the third of the four areas. We believe that to increase corporate value, it is not enough to focus solely on capital policy and growth investments. We also need to place a significant emphasis on people and sustainability or non-financial areas. These are essential to achieving growth. Consequently, we will prioritize these areas in our efforts. Toyota Tsusho currently has a workforce of 70,000 employees. representing a diverse range of nationalities, genders, and ages. All of these individuals are united in their shared commitment to the company's mission, vision, and values. The woman in the center holds the crystal ball, which represents Toyota Toshio's DNA, symbolizing the company's collective identity. On the day I assumed office on April 1st, we sent this by email to all 70,000 employees worldwide. And I found it interesting that hundreds of people responded. This is the current image of Toyota Tsusho, specially designed by Yusuke Kozaki, the world-renowned designer of the Pokémon GO. We refer to it as the Brigade of 70,000, a term that conveys the image of a brigade traveling toward the North Star. For your reference, Toyota Tsusho has 70,000 employees with 20,000 working in Africa and the remainder evenly distributed among other regions. Regarding group companies, There are sites of 1,000 companies. For instance, we have leadership in a remote area of Burkina Faso, Africa, where we sell cars and provide service to customers. This distinguishes us as a unique group of Japanese companies with a profile that is almost unparalleled worldwide. To achieve solid results in such a vast organization, it is essential that the 70,000 employees at all locations share the mission, vision, and values previously mentioned. Taking initiative and responsibility to realize their potential is also crucial. While the concept may seem somewhat abstract, we have identified two key areas human capital development and organizational vitality. To address these issues, we have established a human company task force in April. The first one is Human Capital DNA Awakening. Instead of focusing on human capital development, I believe that individuals are born with minimal differences in their innate abilities. What matters is whether that DNA or potential is awakened. We're implementing various activities as part of our policy to create a human resources policy that awakens everyone's potential. In light of the evolving business landscape, while restructuring our organization to circumvent the inflexible, change-averse pyramid structure frequently linked to Japan traditional company JTC. Instead, we aim to become a Darwin company that adapts flexibly to change and thrives like a living organism. In terms of sustainability, we're working on decarbonization, greenhouse gas emissions reductions, and overall risk reduction. In terms of decarbonization, we have focused mainly on Scope 1 and 2, but we will also address Scope 3, which is reducing sustainability risk throughout the supply chain and contributing to global CO2 reduction efforts. Next, please. This is the last page. We believe that external evaluation is also very important. This is the carbon neutral roadmap that we published in 2021. Since making the various declarations, we have continued our activities steadily. Last fiscal year, we were one of only eight companies worldwide and the only company in Japan to receive the highest rating AAA from CDP, the most authoritative environmental organization. We're pleased to share that we have received a rating of 4.7 out of 5 from FTSE. We're occasionally mentioned in the press as Toyota Tsusho, the decarbonization trading company. And we aim to uphold this reputation by maintaining our standing in this area. With that, I conclude my remarks. As a general trading company with unique competitiveness, Toyota Tsusho will continue to increase corporate value and pursue the vision of Be the Right One. Thank you very much.