Mitsubishi Corp

TSE:8058

Earnings Call Analysis

Mitsubishi Corporation Q1 FY2023 Financials

Mitsubishi Corporation kicked off FY2023 with consolidated net income at JPY 317.7 billion, 35% of the full-year forecast. Driven by robust resource prices and foreign exchange rates, the firm saw profits across all segments, including non-resource areas. Q1 yielded the second-highest quarterly profit in history, despite a JPY 216.3 billion decrease from the previous year's record quarter, largely due to normalized market prices for resources. The company remains focused on its Midterm Corporate Strategy 2024, with a healthy cash inflow of JPY 635.1 billion and a strong push for asset efficiency and growth strategies amid global economic uncertainty.

Mitsubishi Corporation's Strong Start in FY 2023 Despite Resource Market Shifts

Mitsubishi Corporation's CFO, Yuzo Nouchi, kicked off the earnings call with a positive tone, reflecting on a robust first quarter for the fiscal year 2023. With a consolidated net income of JPY 317.7 billion, the company has benefited from stable resource prices and foreign exchange rates. Key highlights include success across all segments, especially nonresource fields, and capital gains in the food industry and urban development. Significantly, the company is on track, with 35% progress towards the full year net income forecast of JPY 920 billion. Despite a decrease from the prior year when they reached their second-highest quarterly profit, Mitsubishi maintains a strong profit level and expects this trend to continue.

Advancing the Midterm Corporate Strategy Amid Economic Uncertainties

Nouchi highlighted Mitsubishi's commitment to advancing its growth strategies and initiatives under the Midterm Corporate Strategy 2024. The company remains focused on enhancing corporate value, with plans for new investments and contemplating additional shareholder returns. The management is mindful of future cash flow trends while considering these capital allocations. Although profits saw a decline due largely to the absence of the previous year's market price surge for resources, the company's non-resource sector maintains profitability, suggesting a resilience that bodes well for future performance.

A Robust First Quarter Financial Performance

Detailing the financial achievements, CFO Nouchi mentioned a strong inflow of JPY 635.1 billion, combining operating cash flow and divestments. With JPY 227.7 billion in investments, the adjusted free cash flow stood at a positive JPY 407.4 billion. These figures reflect steady progress on the Midterm Corporate Strategy 2024's cash flow allocation plan. The cumulative underlying operating cash flow has reached JPY 1.6 trillion, with divestments at JPY 1 trillion, and investments tallying up to JPY 1.1 trillion. Nouchi's confidence in these figures spells a prudent and strategic approach to investments amidst volatile market conditions.

Segment Analysis Reveals Mixed Outcomes

Yoshihiro Shimazu from Corporate Accounting took over to dissect segment performances. Natural Gas saw a substantial profit increase due to the absence of the previous year's trading losses, while the Mineral Resources segment suffered from decreased coal prices. The Food Industry, however, posted gains with profitable sales of affiliated companies. Urban Development reported a profit decrease, associated with the non-recurrence of last year's significant real estate sales gain. These mixed results across segments indicate a dynamic portfolio with specific areas counterbalancing the downturns in others.

Earnings Call Transcript 2024-Q1

[Yuzo Nouchi, executive]

I am Yuzo Nouchi, CFO of Mitsubishi Corporation. Thank you very much for taking time out of your busy schedule to attend our financial results investors briefing. First, I will explain the progress of the Midterm Corporate Strategy 2024, including a summary of financial results for the first 3 months of FY 2023.

Next, General Manager, Shimazu, of the Corporate Accounting Department, will explain the details of the financial results. Please refer to the third page of the financial results presentation materials on the bottom right.

First, I will explain the main points of the financial results for Q1 of FY 2023. Consolidated net income for Q1 was JPY 317.7 billion. Many of our businesses performed well as resource prices and foreign exchange rates remained firm, and we steadily accumulated profits in all segments, including nonresource fields.

In addition, the food industry and urban development recorded capital gains from asset replacement, and we are making progress in our efforts to implement a value-added cyclical growth model. The progress [ rate ] towards the full year forecast of JPY 920 billion is 35%, which is a smooth start towards the achievement of the full year forecast.

In the second quarter and beyond, we will continue to accelerate our growth strategies and initiatives for the value-added cyclical growth model as stated in the midterm corporate strategy 2024, with the aim of further enhancing corporate value. In addition, we will continue to consider the allocation of capital for new investments and additional shareholder returns, taking into account future cash flow trends and other factors.

Next, on Page 4, on the bottom right, I will explain the year-over-year changes. For the first quarter of FY 2023, each of our businesses steadily accumulated earnings, resulting in the second highest quarterly profit in our history, following the JPY 534 billion recorded in the same period last year, compared to the same period last year, profit decreased by JPY 216.3 billion, mainly due to the absence of the sharp price in market prices, especially for resources.

In the non-resource sector, in addition to the absence of capital gains recorded in the previous year, the tightened supply and demand has begun to normalize. However, we continue to maintain a high level of profit. We expect this favorable trend to sustain going forward.

Please turn to Page 5. I would like to go over our progress as of the first quarter of FY 2023 vis-a-vis the cash flow allocation plan set forth in the midterm corporate strategy 2024. Cash inflow for the period was JPY 635.1 billion, consisting of JPY 344 billion in underlying operating cash flow and JPY 291.1 billion in cash flow from divestments, JPY 227.7 billion of investment was a cash outflow. And as a result, adjusted free cash flow marked positive JPY 407.4 billion -- as the cumulative results on the midterm corporate strategy 2024, underlying operating cash flow from -- cash flow was JPY 1.6 trillion, and cash flow from divestments marked JPY 1 trillion, making steady progress against the outlook.

Investments totaled JPY 1.1 trillion on a cumulative basis, and we are steadily building up the balance of new investments, mainly in EX. We will continue to consider investments at the most appropriate timing while keeping a close eye on the market environment. The progress of [ ENECO ] targets of Midterm Corporate Strategy 2024 is summarized on Page 6. So please refer to the information at your convenient time.

Although the global economy remains uncertain, with concerns over recession stemming from high interest rate and inflation, good progress was made in building a robust portfolio by generating cash flow from competitive existing businesses and replacing assets. And we were able to present a strong financial result as in the previous fiscal year. We started the year with a good Q1. We will continue to improve asset efficiency by implementing the value-added cyclical growth model while steadily executing our growth strategy to further enhance our corporate value over the medium to long term, -- this concludes my explanation.

Next, I'll hand over to Mr. Shimazu, General Manager of Corporate Accounting Department to go through the details of FY '23 Q1 result.

[Yoshihiro Shimazu, executive]

This is Shimazu from Corporate Accounting Department. I would like to provide you with some additional information on the detailed results of the first 3 months of FY 2023. Please refer to Page 8 on the bottom right of the document. I will explain the segment with large increases and decreases compared to the same period of the previous year.

First, natural gas, the first segment from the top on the left side of the slide, recorded a profit increase of JPY 31.4 billion to JPY 49.5 billion, mainly due to the absence of trading losses in the LNG sales business in the previous year. On the other hand, Mineral Resources, the fourth item from the top reported JPY 157.7 billion earnings decrease year-on-year to JPY 97.1 billion, mainly due to the impact of lower Australian metallurgical coal prices.

Next, moving on to the right-hand side of the slide, the second business segment from the top, Food Industry recorded JPY 49 billion, up by JPY 26.6 billion year-on-year, mainly due to a gain on sales of an affiliated company, among others. Last but not least, Urban development, the items shown at the very bottom, marked a net income decline of JPY 88.4 billion to JPY 16.2 billion, mainly due to the absence of the sales gain of a real estate management company recorded in the same period last year.

Page 9 illustrates reference information, which summarizes assumption for market conditions. Please have a look later at your convenient time. This conclude my presentation. Thank you for your attention.

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