Itochu Corp

TSE:8001

Q1-2026 Earnings Call

[Tsuyoshi Hachimura, executive]

Hello, everyone. This is Hachimura, CFO. Today, I'd like to explain our results for the first quarter using the presentation titled Business Results Summary.

Let's begin with Page 3 of the PowerPoint showing the business results. Our consolidated net profit was JPY 283.9 billion. This was partly driven by progress made in our asset replacement strategy, and we achieved a record Q1. In terms of year-on-year, it was [ 137% ] of the same period last year, and we made 32% progress towards the JPY 900 billion consolidated net profit target. The numbers are not evenly spread throughout the quarters, but we made a good start in line with our initial plan.

There were a lot of one-off impact in Q1, but our business model tends to be concentrated towards the second half of the year. We have no concerns in achieving the annual budget and are making good progress in the various parts of our profit growth plan.

As for the impact from tariffs, as we highlight at the bottom point section, the impact in Q1 was minimal. And thanks to the agreement reached on reciprocal tariffs, there is now less uncertainty. However, that doesn't change the fact that there was a big increase in the tariff amount, and we need to continue to look out for the impact of Trump 2.0 policies on the economy, not just from tariffs. And we remain cautious because the subject of the negotiations could change at any time and are not yet final.

In terms of the year-on-year comparison, for the Textile, Energy & Chemicals, Food, ICT & Financial Business and The 8th did well, which are the nonresource businesses. And for others, which includes one-off profit items such as the CPP capital gain. Meanwhile, for Metals & Minerals, General Products & Realty and Machinery did not perform that well. As a result, the breakdown of nonresource to resource is 9:1.

On Page 5, we show our core profit. And you can see that there was a JPY 21 billion decline year-on-year because total was JPY 181 billion. But as we explained on Page 5, the main reasons for the JPY 21 billion year-on-year decline are the decline in resource prices, yen appreciation and the underperformance of the resource businesses, mainly Metals & Minerals. Those were the main factors.

As for the consumer-related sectors, there were some ups and downs, but overall, they did well. And these sectors offset the negative from the resource operations. In any case, we are still in Q1, and we plan to build up the numbers in Q2, 3 and 4 as we go along.

In terms of the status regarding the turnaround, there may be some questions later, but we are making progress according to plan. As for the yen appreciation, in Q1 of last year, the average was JPY 155.8. This year, it's JPY 144.59. So the yen appreciated by more than JPY 11. There was a JPY 12 billion negative impact from that. And for resource prices, there was a JPY 9 billion negative impact, mainly from the iron ore prices. The JPY 4 billion negative impact to -- for resource core profit shown here includes factors such as the volume and cost impact from EMEA, iron ore and coal as well as CIECO Azer.

Going back a bit to Page 4, this shows the performance of each segment. The consumer-related segments did well. In terms of year-on-year, The 8th Company, Textile, Food, Energy & Chemicals did well. Meanwhile, Metals & Minerals, General Products & Realty and Machinery declined. And ICT & Financial Business was in line with last year. The 8th Company benefited from the daily -- increased daily sales in Family Mart, the expansion of new businesses as well as the strengthening of the business platform. Textile did well, thanks to the impact from acquiring an additional stake in Descente as well as apparel, mainly in the area of international sports.

In Food, the trading of provisions, such as rice and cocoa was strong and group companies such as Dole, Nippon Access and HYLIFE did well. Meanwhile, the businesses that were not that strong, Metals & Minerals, this was due to the decline in the market pricing, the weakness in mining operations, the FX valuation loss for the deposits owned by the Brazil iron ore CM as well as for Marubeni-Itochu Steel, there was the delay in recovery for demand for steel materials and steel pipes.

And for General Products & Realty, ITOCHU Fiber Limited, which is the Finland pipe-related entity did not do that well due to market impact as well as the lack of recovery in demand from China.

The North America housing materials business was also partly weak. On the other hand, in Q1 of last year, there were a lot of real estate disposals concentrated in that period. So there was the rebound from that. And in Machinery, there was negative impact from the suspension of operations in Asia IPP. For shipping, there was the gain on sale of ships in Q1 of last year, and there was also the decline in the shipping market pricing, which affected the earnings.

And for YANASE, in Q1 this year, unlike last year, there was a decline in market for the used cars and also weak numbers for both new and used cars in the first quarter.

For Construction Machinery, especially Hitachi Construction Machinery, as announced 2 days ago by Hitachi Construction Machinery themselves, there was a downward revision related to the situation in North America. Meanwhile, the international auto business was slow in general. This was not so much due to the number of cars exported. It was more to do with the strong yen, reducing the yen translated profit from our international operations.

And for ICT & Financial Business, which was in line with last year. For CTC, they did well or very well in each of the 5 segments. Meanwhile, although this was as expected, the number of contracts is declining in the mobile phone-related business. So on a net basis, there wasn't that much growth in ICT & Financial Business.

On Page 27, we show the one-off P&L items. The total is JPY 103 billion. There was the gain on the sale of CPP JPY 88 billion, and that was the JPY 8 billion from the disposal of Provence Huiles in Food Business. And for Machinery, there was the partial sale and revaluation of the stake in JAMCO. This was in the Machinery segment. And if you add them up, it was total JPY 103 billion.

As for investments on Page 10. Gross investments amounted to JPY 297 billion. Meanwhile, JPY 185 billion of that was already decided in FY 2025. So the new investment decisions amounted to JPY 50 billion, including IT Corp, Nishimatsu Construction and part of Hitachi Construction Machineries investment. There was JPY 62 billion of CapEx, leading to the total of JPY 297 billion. As for exits, it was mainly CPP and total of JPY 201 billion, the net -- making the net investment, JPY 96 billion.

In terms of shareholder returns, shown on Page 9. For share buybacks, JPY 40.1 billion as of June end. We've said that we will buy back from the market JPY 150 billion during the period of May 7 to December 31. And we recently announced the numbers as of July end, JPY 61.6 billion, 41% progress. We are making very good progress in buying back from the market. Meanwhile, as for the minimum dividend of JPY 200, which we announced at the beginning of the fiscal year and for which the feedback from the market was not all positive. As for this JPY 200 per share number, because our business is concentrated more in the second half of the year, we will monitor the progress in our earnings towards the second half and flexibly consider this number, and we expect discussions to take place at our Board as well.

In terms of our full year outlook on Page 8, we have some commentary on each of the factors. And things are going pretty much in line with our expectations. So we are confident that we can achieve the JPY 900 billion. And I'm happy to take any questions in the Q&A session for details.

And in terms of the points I'd like to consider and look out for in Q2 onwards, although agreement was reached for tariffs, the impact, including the passing on to prices in the U.S. is to be determined going forward. So the consumption trends in the U.S. is something I'd like to look out for.

In terms of the Japan and U.S. financial policy and monetary policy, the FRB and the BOJ agreed to maintain the status quo for the time being. But the impact on currency, which this could have is somewhat concerning. And as for China, the government is expected to implement more and more of economic stimulus packages going forward. So under these circumstances, the outflow from China, especially in this overcapacity situation is somewhat concerning.

On the other hand, the currency assumption is JPY 140, and the sensitivity is JPY 2.4 billion to a JPY 1 fluctuation. And as for the impact of the economic slowdown from President Trump's policies, which we assume to be JPY 40 billion, the actual impact in Q1 was at least in relation to tariffs, extremely minimal. So considering the impact of these items, although there is some upside, we need to make sure to turn around some businesses according to our initial plan in the coming Q2, Q3 and Q4.

And that concludes my presentation. And now I'll be happy to take your questions.