Marubeni Corp

TSE:8002

Earnings Call Transcript 2021-Q3

[Takayuki Furuya, executive]

This is Takayuki Furuya, CFO of Marubeni. I'd like to now present the Q3 consolidated financial results for the fiscal year ending March 2021, and I will also talk about the full year forecast. Please refer to the PowerPoint presentation material.

Starting with Page 1 and please refer to Page 2 as well. Q1 to Q3, net profit increased by JPY 18.1 billion or 12% year-on-year to JPY 163.8 billion. Excluding the onetime items, adjusted net profit increased by JPY 2 billion or 1% year-on-year to JPY 176 billion. Despite the COVID-19 impact, both profit -- net profit and adjusted net profit increased.

Now the breakdown of this JPY 2 billion, JPY 7 billion increase in non-resources. There was a decrease in Aerospace & Ship, Forest Products, Construction, Industrial Machinery & Mobility. However, there was an increase in Agri Business, Food, Chemicals, ICT & Real Estate Business.

In resources, there was a decrease of JPY 15 billion in -- mainly in the Metals & Mineral Resources and Energy due to the lower prices of oil and coal. Improvement regarding onetime item was JPY 17 billion due to nonrecurrence of the impairment losses on the oil and gas E&P in the United States Gulf of Mexico recognized previous year.

Core operating cash flow was positive JPY 272.9 billion, and free cash flow after the delivery of the shareholder return was minus JPY 1.5 billion, down JPY 18.9 billion year-on-year. Net D/E ratio stood at 1.06x, improvement of 0.1 point from the previous fiscal year-end.

As for the forecast of the net profit, as the Q1 to Q3 result exceeded the November full year forecast of JPY 150 billion, we have revised the net profit forecast by JPY 40 billion to JPY 190 billion and also the adjusted net profit by JPY 40 billion to JPY 210 billion.

Core operating cash flow forecast is revised upward by JPY 40 billion. Forecast of free cash flow after delivery of shareholder return is also revised by JPY 40 billion upward. Net D/E ratio forecast has changed from about 1.1x to about 1.0x.

With the net profit forecast of JPY 190 billion, we calculated the dividend based on the payout ratio of 25%. So now 28% -- JPY 28 per share is set at the minimum, which is a JPY 6 increase from the JPY 22 in the previous forecast. Year-end dividend forecast revised to JPY 17 per share from JPY 11 per share, a JPY 6 increase.

Next, let me talk about the impact of COVID-19 on earnings structure in terms of the adjusted net profit. Please go to Page 3. Here, we are looking at Q1 to Q3 cumulative adjusted net profit year-on-year comparison.

Starting with A, the stable earnings-type business and lifeline-related businesses. Adjusted net profit is increased by JPY 14 billion to JPY 81 billion. Profit increased in the businesses essential to daily life such as agriculture and food-related businesses. And the stable earning-type business, including IPP with PPA and infrastructure business and others, maintained the same level of the profits as the previous year and even under the COVID-19.

Next is B, trade business. Adjusted net profit increased by JPY 2 billion to JPY 40 billion. Profit increased in the trading business in Chemicals and domestic real estate sales and others despite profit decreases in Forest Products, Steel Products and others.

Now C is businesses compositely affected by influence of COVID-19, including commodity prices. Adjusted net profit has decreased by JPY 26 billion to JPY 54 billion. This includes transportation, that is Aerospace & Ship and Construction and Industrial Machinery & Mobility, down by JPY 13 billion. Natural resources investment is down by JPY 13 billion due mainly to lower coal price.

Please go to Page 4. Here, we look at the full year forecast of the adjusted net profit comparing the November forecast to the current forecast.

Now looking at A, stable earning-type business and lifeline-related business, the forecast has increased by JPY 9 billion to JPY 97 billion. Profit increase in the businesses essential to daily life such as agriculture and food-related businesses and contribution from the stable earning-type businesses, including power business and infrastructure business.

B is trade business. The revised forecast is up by JPY 6 billion to JPY 42 billion with increase in trading businesses in Chemicals and Energy.

C is businesses compositely affected by influence of COVID-19, including commodity prices. This is revised by JPY 19 billion to JPY 68 billion. The used car related financing business has been strong. So Finance & Leasing Business, Construction, Industrial Machinery & Mobility expect to have a JPY 4 billion increase. Due mainly to rising commodity prices, adjusted net profit of natural resource investments, including copper and iron ore businesses, is expected to increase by JPY 15 billion.

That concludes the Q3 financial results as well as full year forecast.

Let me now go to Page 8, which is the new investments and divestment. First, the new investments and CapEx and others in total was JPY 191.7 billion. Divestment was JPY 69.5 billion. Same as first half, mainly it was in the distribution businesses, the hygiene product manufacturer in Brazil, manufacturing and sales of containerboard as well as the instant coffee in Vietnam and also additional investment in the beef processing and sales business with Creekstone Farms in the United States. We try to expand those existing businesses where we are strong.

Also, for CapEx, we have selectively allocated funds to the businesses, existing businesses where we would like to strengthen and maintain, including the Helena in the United States. As for the full year forecast, the new investment is JPY 150 billion. CapEx and others is JPY 120 billion. Divestment is JPY 100 billion. Those are the same as the November 4 forecast. We will be selectively investing into the growing areas.

Please turn to Page 10. On this page, we are looking at Q1 to Q3 adjusted net profit, and I will focus on the segments where profit increased. So please focus on this lower half of this slide.

Starting with ICT & Real Estate Business. In the first half, in Japan, the real estate sales business was strong. So the adjusted net profit increased by JPY 7 billion to JPY 14 billion.

In Food, in the livestock-related business in the United States at the Creekstone beef processing and sales business, processing and sales business, also in Japan, well, from food that is marketing of the livestock and meat and processed product were strong. And as a result, the adjusted net profit increased by JPY 8 billion to JPY 26 billion.

In Agri Business, higher grain prices, improved business environment and profits of Gavilon and Colombia Grain improved. Adjusted net profit increased by JPY 11 billion year-on-year to JPY 26 billion.

In Chemicals, the profitability improved in the trade of the petrochemical products. As a result, adjusted net profit increased by JPY 7 billion to JPY 12 billion.

Now let's look at the segment with lower profits. Forest Products, the Musi Pulp business profit declined with the deteriorating market of the pulp. The adjusted net profit declined by JPY 4 billion to JPY 1 billion.

In Energy, lower oil and gas prices pushed down the profits of LNG projects and oil and gas E&P. Adjusted net profit decreased by JPY 6 billion year-on-year to JPY 11 billion.

In Metals & Mineral Resources, with higher prices of iron ore and copper, Australian iron ore business and the Chilean copper business profits increased. However, with the lower oil -- coal prices, the Australian coal business profit decreased. Adjusted net profit decreased by JPY 11 billion year-on-year to JPY 36 billion.

Due to COVID-19, sales of aircraft parts were lower and vessel operation revenue declined. Adjusted net profit of Aerospace & Ship decreased by JPY 8 billion year-on-year to JPY 5 billion.

In Construction, Industrial Machinery & Mobility, profits of construction machinery, industrial equipment, tires and rubber materials declined due to COVID-19. Adjusted net profit declined by JPY 4 billion year-on-year to JPY 9 billion.

Moving on to the next page, Page 11. We are looking at the full year forecast in comparison to the previous forecast in terms of the adjusted net profit. We expect JPY 18 billion increase in non-resources and JPY 18 billion increase in resources.

Now let's look at the segments with higher profit. Food, livestock-related grain and food increased their profit. So the full year forecast is increased by JPY 4 billion from the previous forecast to JPY 32 billion. Agri Business, in Q3, the U.S. grain business profit increased. The full year forecast increased by JPY 5 billion to JPY 32 billion.

In Energy, our oil price assumption was moved up. And with that, the full year forecast increased by JPY 6 billion to JPY 120 billion -- JPY 12 billion rather. In Metals, Mineral & Resources, although the coal prices were lower with the higher copper and iron ore prices, the full year forecast is up by JPY 13 billion to JPY 48 billion.

Finance & Leasing Business, the U.S. used car related financing business was strong. So the full year forecast is up by JPY 4 billion to JPY 12 billion.

The Power Business with the lower retail power sales business, the full year forecast is decreasing by JPY 3 billion to JPY 15 billion.

Lastly, I'd like to talk about the Aircastle that is in the aircraft leasing business in the United States. Please refer to the supplementary information of IR on Pages 11 and 12. The Q3 net profit attributable to Marubeni was minus JPY 7 billion. That is down by 7 point -- down by JPY 10.7 billion year-on-year. This is due to the lower fleet utilization at Aircastle and with decreased leasing revenue.

Also in our consolidated results, there were depreciation in relation to post-acquisition PPA and impairment loss of aircraft. As of the end of December last year, our total liquidity, including cash deposits and facility and others was about $2.2 billion. Liquidity coverage ratio for coming year is 2.9x, which is at the high level. We have sufficient liquidity, and we continue to see the tough environment, the situation in airline industry. We will be watching the situation closely to conduct our businesses.

That concludes my presentation on the Q3 financial results. The end of the COVID-19 pandemic is not very clear, so uncertainty is likely to continue, but we will continue to make a steady progress in rebuilding and strengthening the financial foundation as well as fortifying earnings base.

Thank you.