Mitsubishi Corp

TSE:8058

Earnings Call Transcript 2023-Q1

[Yuzo Nouchi, executive]

This is Nouchi, CFO of Mitsubishi Corporation. Thank you very much for taking time out of your busy schedule to participate in our financial results, investors briefing for the first quarter of FY 2022.

First, I will give the overview of the results, after which Shimazu, General Manager of Corporate Accounting Department, will give you a detailed explanation. I will now explain the results for the 3 months ended June 2022, as indicated on the cover page of the material. Please refer to Page 1 on the lower right.

First, let me explain the summary of year-over-year fluctuation. Please see the box on the lower left. Consolidated net income for the first quarter of FY 2022 was JPY 534 billion, a record high on a quarterly basis. We view this as a robust result while addressing the rapidly changing business environment with an increase of JPY 346.4 billion year-on-year.

In addition to high resource prices, many of our businesses performed well, including automotive, the European integrated energy business and the North American real estate development business. In addition, in urban development, we recorded a capital gain of JPY 84.1 billion from the sale of a real estate management company. This is a good example of implementing the Value-added Cyclical Growth Model set forth in the Midterm Corporate Strategy 2024 after comprehensively taking into account the perspective of asset replacement and enhancement.

Next, we will discuss progress against financial outlook. Please continue to look at the box at the bottom right of the slide. As of the first quarter, 63% of the full year forecast of JPY 850 billion has been achieved, very high progress ratio. The plan expected profits to be skewed towards Q1 due to recognition of capital gains related to asset replacement in high commodity prices at the beginning of the year, but the progress rate was boosted as commodity prices trended higher than expected and performance was favorable due to tailwinds in the Industrial Materials, Petroleum & Chemical Solutions and Automotive & Mobility segments.

However, as commodity prices have settled down now from Q2 and beyond, we are anticipating a severe business environment with the situation in Russia and Ukraine, the resurgence of COVID-19 and monetary tightening in light of inflation around the world. Regarding the full year guidance, we will account for the uncertain circumstances, as mentioned earlier, and plan to scrutinize and determine the level of the upward revision during Q2.

Additional shareholder return will also be considered together with the full year guidance during Q2. Although Q1 was a fast-changing business environment, our view is that we are off to a good start, as we were able to capture earnings opportunities firmly and recorded strong profit growth, resulting in a high progress rate against the full year guidance. On the other hand, from Q2 onwards, the business environment is expected to worsen because of a slowdown in the global economy.

We will not let our guard down with this year's performance, but we'll continue to promote the value-added cyclical growth model and aim for sustainable profit growth that we raised in the Midterm Corporate Strategy 2024, so as to increase corporate value. That is all for me.

Next, Mr. Shimazu, the General Manager of Corporate Accounting, will speak mainly about performance by segment.

[Yoshihiro Shimazu, executive]

This is Shimazu, General Manager of the Corporate Accounting Department. I would now like to make a few additional points. Please refer to the second page of the results for Q1 year-over-year segment income. In Q1, 8 out of the 10 segments reported year-over-year gains.

Now I will specifically make supplementary comments regarding these segments with large increases and decreases. First, Industrial Materials, the second item from the top on the left side of the slide, increased year-on-year by JPY 10.1 billion to JPY 19.2 billion from JPY 9.1 billion, mainly due to an increase in equity in earnings of the plastic building materials in North America.

Petroleum & Chemical Solution also increased year-on-year by JPY 12.5 billion to JPY 22.4 billion from JPY 9.9 billion, mainly due to the reversal of deferral tax liabilities -- deferred tax liabilities in the chemical manufacturing business and increased trading profits in the petroleum business.

Mineral Resources rose year-on-year by JPY 188.9 billion to JPY 254.8 billion from JPY 65.9 billion, mainly due to higher market prices in the Australian metallurgical coal business.

Then we'd like to move on to the right-hand side of the slide. The Automotive & Mobility segment recorded JPY 46.5 billion, an increase of JPY 19.2 billion from JPY 27.3 billion in the same period, mainly due to increased equity in earnings of Mitsubishi Motors Corporation and the ASEAN automobile business.

See items below that. Power Solutions posted a profit of JPY 14.4 billion, up JPY 17.7 billion from a loss of JPY 3.3 billion in the same period of the previous year, mainly due to increased equity and earnings of European integrated energy businesses and overseas power projects. Finally, Urban Development, which included gains on the sale of a real estate management company, increased by JPY 82.9 billion to JPY 104.6 billion from JPY 21.7 billion.

Please move on to Page 3. Next, I will talk about cash flow on this page. Please refer to the right-hand side of the bar graph where fiscal year '22 Q1 cash flow results are shown. In green is underlying operating cash flow at plus JPY 462 billion and investing cash flow is in blue, which was JPY 78.3 billion positive. As a result, adjusted free cash flow was plus JPY 540.3 billion.

Please look at the blue box at the bottom right for our main items of investing cash flow. New and sustaining investments were JPY 195.8 billion due to investments in loans related to the copper and Australian metallurgical coal business as well as the European integrated energy business.

Sales and collection was JPY 274.1 billion, which came from the sales of investment in the real estate management company as well as the North American shale gas business and aluminum smelting business. This resulted in a positive JPY 78.3 billion net investment cash flow. Please also note that for each of the items, we have color-coded them from this time around by yellow, maintain/expand earnings base; green, EX related; and blue, DX/growth related, which represents the areas in the investment plans under corporate midterm strategy 2024.

Page 4 shows reference regarding market assumptions. Please refer to them later. That is all for me.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]