Marubeni Corp

TSE:8002

Earnings Call Transcript 2021-Q1

[Takayuki Furuya, executive]

Thank you very much for taking time to attend our conference call today. I will go over the consolidated financial results of the first quarter of the fiscal year, ending March 2021, by referring to the A4 size IR PowerPoint presentation.

Please turn to Page 1 and 2. The net profit for the first quarter decreased by JPY 7 billion or 11% year-on-year to JPY 58.1 billion. The adjusted net profit, obtained by subtracting onetime items from the net profit, declined by JPY 11 billion or 16% year-on-year to JPY 59 billion. The breakdown of the drop of the adjusted net profit of about JPY 11 billion were JPY 4 billion in the non-resources area, such as Construction, Industrial Machinery & Mobility and Finance & Leasing Business, and JPY 8 billion in resources where a drop in coal prices was the primary reason. I will give you more details by segment later in my presentation.

The improvement in profit and loss for onetime items of JPY 4 billion was mainly due to the absence of impairment loss in oil and gas E&P in the Gulf of Mexico in the U.S. recognized in the same period the year before. There is no major onetime profit and loss item to note in this quarter.

The core operating cash flow was almost flat year-on-year at positive JPY 94.5 billion. Free cash flow after the delivery of shareholder returns was positive JPY 49.3 billion, up JPY 4.1 billion year-on-year. The net D/E ratio improved by 0.03 points from the end of the previous fiscal year to 1.13x.

Please turn to Page 3. In this slide, you can see the earnings structure under the impact of COVID-19 with the breakdown of the adjusted net profit for this first quarter as compared to the same period the year before. With regard to, a, stable earnings-type business and lifeline-related business, the adjusted net profit remained unchanged year-on-year at JPY 32 billion. Stable earning-type businesses, such as IPP with PPA in Power Business, and water, gas and other infrastructure businesses and businesses essential to daily life, including agriculture and food-related business, contributed to earnings at the same level as the first quarter of the previous fiscal year.

As for b, trade business, the adjusted net profit went up by JPY 3 billion to total JPY 17 billion. The impact of COVID-19 led to a decrease in the profit in Steel Products and Forest Products, but this is more than offset by the improved profitability in trading in Chemicals and Energy.

Then, c, businesses compositely affected by influence of COVID-19 suffered a year-on-year drop of JPY 16 billion to JPY 9 billion in the adjusted net profit. This includes JPY 5 billion in Transportation, such as Construction, Industrial Machinery & Mobility and Aerospace & Ship and Finance & Leasing business. Another JPY 11 billion decrease was due to oil and gas E&P, coal and copper mining businesses, where coal and other commodity prices fell. That was about the impact of COVID-19.

Next, I would like to discuss profit by segment on Page 9. I will explain about the chart at the bottom showing adjusted net profits, highlighting those with larger increases and decreases. ICT & Real Estate Business increased by JPY 3 billion year-on-year to reach JPY 6 billion due to the progress made in sale of domestic condominiums in the first quarter. As for the Food business, in the beef processing and sales business of Creekstone Farms in the U.S., amid tight supply and demand caused by the temporary suspension of production by other major industry members in response to COVID-19, we were able to maintain our operations, which helped bring up profit by JPY 4 billion to JPY 11 billion.

In Chemicals, improvement of profitability in the trading of petrochemical products, including ethylene, resulted in a profit of JPY 4 billion, up JPY 2 billion year-on-year. In Metals and Mineral Resources, lower coal prices in the Australian coal business was the main reason for an JPY 11 billion year-on-year drop to JPY 7 billion.

In Construction, Industrial Machinery & Mobility, restrictions on activities by lockdown due to the impact of COVID-19, pushed down profit in construction in industrial machinery and automobile-related business, which led to a decline of JPY 4 billion year-on-year to JPY 1 billion.

Last but not least, let me briefly talk about Aircastle Limited, a U.S. aircraft leasing business in which we acquired additional stake at the end of March this year. Aircastle reported its earnings result yesterday U.S. local time. It suffered a loss, partly due to the impairment loss posted on the aircraft under the current circumstances of the airline industry. In our company, we already reduced the book value of some aircraft when we recognized the impairment losses in the financial statement of the previous fiscal year. Therefore, the impairment loss posted by Aircastle is not reflected directly in our financial results. In our first quarter results, we posted JPY 1.7 billion impairment losses on aircraft. Consequently, the income attributable to our company from Aircastle business was JPY 2.2 billion in deficits, down JPY 2.5 billion year-on-year.

That is all for the financial results of the first quarter. On a consolidated basis, we sustained a drop in the profit year-on-year. But as compared to the forecast at the beginning of the fiscal year, we have made a 58% progress in consolidated net profit and a 49% progress in adjusted net profit, which we believe shows we're on the right track. Moreover, in terms of strengthening the financial base, we're making steady progress toward the targets in both cash flow and D/E ratio. On the other hand, the impact of the spread of COVID-19 and the future outlook of the real economy remain uncertain. And therefore, we have not reviewed our full year forecast at the moment and plan to figure out at the end of the second quarter to what extent the inflection is expected to be abated and the global economy will be back on the recovery trajectory in the second half onward.

We would like to continue to work to strengthen the earnings pace steadily going forward.

That is all from me. Thank you very much for your attention.