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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon. I'm Takakazu Uchida, CFO. Thank you for joining us today. I will begin by giving a summary of the first quarter operating results and yearly forecast. I will then hand over to our Global Controller, Tetsuya Shigeta, for details of our operating results.
The global economy continued to rebound during the first quarter of this fiscal year, driven mainly by the U.S. and China. Our operating results for the period was significantly higher year-on-year as we continued steady performance, and our strong global business network steadily captured demand arising from the economic recovery. And as a result, we made considerable progress against annual plan.
Please now turn to Page 3, and I will summarize the operating results for the first quarter. Core operating cash flow for the period increased by JPY 159.1 billion to JPY 269.9 billion, and profit for the period increased by JPY 128.7 billion to JPY 191.3 billion year-on-year. Both results represent higher progress rate against the business plan and set a new record for quarterly results.
These outcomes were supported by strong prices in the iron ore business, along with good results in global trading and automobile-related business. Although we do not normally review our yearly forecast at the first quarter, we will upwardly revise our full year forecast for Mineral & Metal Resources and Energy segments this time, reflecting the strong commodity prices.
Core operating cash flow and profit forecasts were upwardly revised by JPY 220 billion to JPY 900 billion and by JPY 180 billion to JPY 640 billion, respectively. With the aim of enhancing shareholder returns and improving capital efficiency, we decided to conduct share buyback to a maximum of JPY 50 billion. The repurchasing period will be from August to October this year.
Please turn now to Page 4. Steady progress was seen in most segments during the first quarter, and we achieved 40% against core operating cash flow plan and 42% against profit plan for the year. Trading businesses in Chemicals, Steel Products and Food was steady, and Lifestyle is showing recovery through growth in COVID-19-related services and cost reduction in IHH.
Please turn to Page 5, where I will discuss progress during this quarter. While steadily capturing the global demand recovery in each of our business areas, we have continuously taken initiatives to strengthen competitiveness and to improve resilience against downward pressure in our existing businesses.
In terms of capturing global demand recovery, strong prices for iron ore and other commodities have contributed to an upswing in performance. While automotive and commercial vehicle businesses, supported by strong pent-up demand as well as trading businesses in Chemicals, Steel Products, Food and others, which coped with growing demand, and various restricted factors in supply have also contributed to strong business performance.
Regarding improvement in profitability and resilience against downward pressure, we have continued to enhance profitability and competitiveness of our existing businesses. We have steadily advanced in projects such as launching operations at South Flank and acquiring new interest in Western Ridge in Australian Iron Ore business and execution of loan agreements for Waitsia in oil and gas projects.
Moreover, we have continued efforts from the previous period to optimize our business portfolio through reorganization and business restructuring. There was progress in initiatives in -- such as Mineral & Metal Resources and Chemicals segments. Looking ahead, we will pay close attention to the impact if COVID-19 infection rates begin to climb again while looking to strengthen and expand our high-quality business clusters, with a keen awareness of changes in the environment as the new normal takes hold.
We will now turn to Page 6 and look at the results of cash flow allocation. Cash-in for the period was JPY 360 billion, comprising core operating cash flow of JPY 270 billion and asset recycling of JPY 90 billion, including loan collection in the copper business.
Cash-out was JPY 220 billion, comprising investment and loans of JPY 145 billion and share buybacks of JPY 75 billion. Main investment and loans included subscription to convertible bonds of PT CT Corpora, the holding company of CT Corp, along with the cash-out for LNG projects under development as well as maintenance CapEx in existing projects, such as oil and gas projects and Australian iron ore and coal business.
Turning to Page 7. We will now look at the balance sheet at the end of the first quarter. As compared to the end of March 2021, net interest-bearing debt and shareholder equity increased JPY 0.1 trillion to JPY 3.4 trillion, and JPY 0.2 trillion to JPY 4.8 trillion, respectively. As a result, the net DER became 0.71x.
Please turn to Page 8. As I mentioned earlier, we are upwardly revising our full year core operating cash flow and profit forecast to JPY 900 billion and JPY 640 billion, respectively. In Mineral & Metal Resources and Energy segments, we have revised forecasts mainly due to changes in the commodity price assumptions. As for the other segments, we will review forecasts when we announce the results of the second quarter of this fiscal year, as usual.
That concludes my presentation today. So I will now hand over to our Global Controller, Tetsuya Shigeta, for details of the first quarter performance.
Thank you. I am Tetsuya Shigeta, Global Controller, and I will now provide details of our operating results for the first quarter.
Please turn to Page 10. First, I will explain the main changes in core operating cash flow by segment compared to the first quarter of the previous fiscal year. COCF for the period was JPY 269.9 billion, a year-on-year increase of JPY 159.1 billion. In Mineral & Metal Resources, COCF increased by JPY 85.5 billion to JPY 127.4 billion, mainly due to higher sales price of iron ore operations in Australia.
In Energy, COCF increased by JPY 10.8 billion to JPY 47.2 billion, mainly due to increase in oil and gas prices. In Machinery & Infrastructure, COCF increased by JPY 25.1 billion to JPY 38 billion, mainly due to increase in dividend from equity method affiliates.
In Chemicals, COCF increased by JPY 8.8 billion to JPY 24.5 billion, mainly due to steady trading business, primarily in East Asia, and commodity market. In Iron & Steel Products, COCF increased by JPY 2.2 billion to JPY 3.8 billion.
In Lifestyle, COCF increased by JPY 13 billion to JPY 16.6 billion, mainly due to sale of Columbia Asia's business in India, recovery of fashion and domestic retail businesses and strong food trading business. In Innovation & Corporate Development, COCF decreased by JPY 0.6 billion to JPY 12.1 billion. Other factors such as expenses, interest, taxes, et cetera, which were not allocated to business segment, totaled JPY 0.3 billion.
Please turn to Page 11. I will now explain the main changes in profit by segment compared to the first quarter of the previous fiscal year. Profit for the period increased by JPY 128.7 billion to JPY 191.3 billion.
In Mineral & Metal Resources, profits increased by JPY 86.8 billion to JPY 119 billion due to factors such as higher sales price at Australian iron ore and Chilean copper operations as well as increase in dividend from Vale. In Energy, profits decreased by JPY 4.7 billion to negative JPY 1.2 billion, mainly due to a decrease in revenue related to LNG and oil trading.
In Machinery & Infrastructure, profits increased by JPY 10.7 billion to JPY 29.2 billion, mainly due to strong automotive and commercial vehicles businesses, primarily in North America. In Chemicals, profits increased by JPY 9.6 billion to JPY 15.9 billion, mainly due to steady trading business, primarily in East Asia, and commodity market.
In Iron & Steel Products, profits increased by JPY 8 billion to JPY 6.7 billion, mainly from steady performance in steel processing and trading business, driven by steady steel market. In Lifestyle, profits increased by JPY 19.5 billion to JPY 13.9 billion due to factors including increased profit in the hospital and health care business and in Wilsey Foods.
In Innovation & Corporate Development, profits decreased by JPY 0.1 billion to JPY 10.4 billion. Other factors such as expenses, interest, taxes, et cetera, which were not allocated to business segments, totaled negative JPY 2.6 billion.
Please turn to Page 12. This page shows main factors influencing year-on-year changes in profit. Base profit increased by approximately JPY 65 billion, mainly due to increasing dividend received from Vale and Australian iron ore business and strong performance of several segments such a Machinery & Infrastructure, Lifestyle and Chemicals.
Looking at resource-related costs/volume, profit decreased by approximately JPY 3 billion in terms of volume, mainly due to the impact of bad weather in Australian iron ore operation. Asset recycling resulted in a decline of approximately JPY 3 billion, mainly due to the absence of sale of power generation business in North America as occurred during the same period of the previous year.
In commodity prices/ForEx, profit increased by approximately JPY 48 billion due to steady iron ore prices and JPY 5 billion due to oil and gas prices. In ForEx, Australian dollar appreciation against U.S. dollar resulted in decline in profit of approximately JPY 1 billion.
Finally, valuation gain/loss and special factors contributed to increase of approximately JPY 9 billion, mainly due to the absence of impairment loss at Mozambique coal business incurred in the same period of the previous year. Thank you.
We'd like to go into the questions. Now we'd like to invite the first person to ask question.
I have 2 questions. This time, you had a very good business performance, but for the full year, especially Mineral & Metal Resources, JPY 160 billion is the full year plan. What is the breakdown? You may not be able to say that, but how much percentage would be the iron ore, for example? If the iron ore was the main reason for the upward revision, then the market price assumption may have been improved to some extent. So what are the plans for the breakdown of this full year plan? That's my first question. And the second question. At the full year timing, this is true, but from the first quarter, you're making revisions to the full year forecast and share buyback. And what -- you have been advocating being agile. I think you are really being agile. That's my impression, but -- and quarters like this at early stage in the full -- in the year, the revision of the forecast could be done going forward. For example, you said that you're going to review the resources in the second quarter as well. So at the earlier stages in the full year, you may be changing into the company that can come up with the revision of the forecast. Is that correct understanding? That's my second question.
Thank you very much for your questions. For both questions, Uchida, the CFO, will answer the questions.
Thank you. As for the upward revision in the Mineral & Metal Resources, they assume the prices have been reviewed. Obviously, iron ore and copper have been reviewed, and -- or metallurgical coal has been reviewed. And as for the size, we cannot say that, but with regard to the price range, in any case, compared to the assumed prices, the iron ore prices have increased. And so this is related to the iron ore prices mainly. And as for the revision of the forecast in the first quarter: It's been only 3 months since coming up with the full year forecast at the beginning of the fiscal year. And as an internal process, we are maintaining the policy of not changing the forecast. So in every quarter, are we going to review the full set of forecasts? No. That's not our policy, but this time, what is assumed in -- at the beginning of the fiscal year, especially iron ore and metallurgical coal and crude oil, they are plateauing or maintained at a higher level. And this could have a huge impact, and that has been taken into consideration. And also we may have to change the revision -- or change the guidance. So in terms of the guidance, we would like to respond to the expectations of the market. And if the direction is correct, then we should come forward with a guidance at earliest stage possible. So for the first quarter, the assumed prices, market prices, have been changed, including the dividends that we can expect to receive. So for Mineral & Metal Resources and Energy segments, we have reviewed our forecasts because of that. And as for share buyback, as we review the guidance, especially the core operating cash flow will be revised in upward manner in -- significantly. So the -- ahead of the interim earnings report, of course, there will be expectations that will be heightened from the market. We can expect that, and rather than waiting for a long time, we can get ahead of that expectation. And the -- considering the actual results of cash flow and the range of the cash flow, we decided that we should revise the forecast in the first quarter. Therefore, it really depends on the situation. So it is not the case that, as we have been saying, we will review the focus every quarter because the range of the revision could have a huge impact. That's why we decided it will be wiser to come forward with guidance at earlier stage. That's all. Thank you.
Thank you very much for the question. Now we'd like to take the next question.
I would like to ask 2 questions. The first question, about the cash flow allocation. The core operating cash flow has been revised up to JPY 900 billion. And you may not be [ revealing ] this, but for the 3 year, for the medium-term management plan, the update is not shown in the slides or the presentation material. When it comes to asset recycling or investments, what is the direction going forward? That is my question. And if investments was JPY 1.5 trillion for the 3 years; from April of this year, if recycling is not going to change, maybe the management range is going to expand further. So I may be early, but when it comes to agile share buyback, what is the direction going forward? That is my first question. And the second question. You may not have [ revealed ] the resources or non-resources, but segments other than resources, the progress has been high against the plan. For each of the segments, to the full year plan, the first quarter has been very strong. Is it sustainable from the second quarter onwards? Do you think each of the segments will be sustainable in their performances? Can you talk about them briefly? And of course, base profit to be enhanced: This is going to lead directly to dividend payment. How confident are you including the introduction of [ ROIC ]? So what is your perspective on that point, please? So please answer my 2 questions.
Thank you very much for the questions. CFO Uchida will answer your questions.
When it comes to cash flow allocation for the next 3 years. As you have indicated, we did not [ reveal ] them on this occasion. The last time when we talked about the plan and also when we announced the results for the fiscal year just ended, from the actual results, there are no major increases or changes. There has been up revision for core operating cash flow, but for investments, et cetera there is no major change. Of course, we will review them for the half year results, but JPY 50 billion of buyback is addition to the shareholder returns that we talked about the last time. So this is an additional return, and this is something that we will consider and review carefully towards the half year. And when it comes to non-resources, of course, we have looked at them very closely. And in the first quarter and the second quarter, there are some phasing factors that are included, but we believe that the value is not that big as an impact. And so the business operation, we believe, is sustainable, is continued. And machinery and Mobility, especially in North America when it comes to automotive and commercial vehicles, these businesses are very, very strong. And we believe these are the highlights in the results. When it comes to vessel trading, they are very strong as well. When it comes to Chemicals, compared to the previous fiscal year, the global production is improving. So the trading is very strong. And when it comes to Novus, methionine price is recovering more than we had expected. And ITC is normalizing as well and they are very strong in general. When it comes to food, Lifestyle, grains trading is strong. When it comes to retail and staying in fashion, they are showing some recovery from COVID-19. And some are not showing any recovery at all, but in all, we believe that they are in a recovery mode. And when it comes to wellness, as I mentioned earlier: IHH, compared to the previous fiscal year, we are seeing rapid recovery. And this is including PCR testing. And also the [ actual ] hospital consultation numbers are increasing as well. We have been working on cost reduction, so far, and when it comes to the net profit, we are seeing expedited recovery. PHC medical devices to support COVID-19 vaccination, these are also contributing to our profit. And also as we have indicated, we are seeing increases in demand in some segments. And because of different factors, there has been some supply limitations. And for example, there were shortages in containers. And in February, in North America there was bad weather, and that caused some confusion. And supply chain was disrupted. And with that kind of limitations, we were able to utilize our logistic and marketing capabilities to the full and we were able to lead them to profitability. So in financial market, we are seeing some peak-out, and we do understand that. So whether it will continue going forward is something that we are monitoring with interest, but in the first half, there are some phasing factors as well. So for July-to-September period, we believe that we'll be able to continue to see strong results. And that is my personal opinion. Business operation and environment, whether it will be sustainable, I believe it's a risk factor, so we will monitor it very carefully going forward. And also, so far in the existing businesses, we wanted to enhance its quality. And also we wanted to improve the profitability of the businesses, so investments into existing and new businesses is something that we have been focusing on. And the profitability or earning base of the existing business, I believe, is being elevated. And that is my expectation. And with that, how much the base profit can be elevated, that is something that we want to confirm. And we will also take into account the business environment and make the necessary evaluations. Thank you.
Thank you very much. We'll move to the next question.
I have 2 questions. First of all, it is related to what has already been discussed earlier. Trading is performing well. And Lifestyle in the first quarter -- how you can expect this good performance to continue. The trading is doing well because market prices are going up, or if there is a pent-up demand. I think those factors are specifically pushing up the market or the performance. Or this trend is expected to continue for some time to come, so it's not categorized as usual onetime factor, but when the economy picks up, you are going up in the performance. And most of the factors are concentrated in the first quarter. Is that what you see? Or since you have been improving your profitability foundation and then -- this is the result that you are now seeing. Is that what you think? And trading and Lifestyle are -- especially seems to be performing well. So can you give us more details and elaborate on that? That's my first question. And as for Mineral & Metal Resources, I have a question. That's the second one. The onetime profit, if it is excluded, then you can see the real earnings power, in -- from the first quarter last year, JPY 36 billion; JPY 56 billion; JPY 48 billion; JPY 103 billion; and then this quarter, JPY 113 billion. So if you look back, for the past quarters, the -- with the market price increasing in the iron ore, your profit seems to be increasing. And from the third quarter to fourth quarter last year, I think the profit had increased. And in Q4 and Q1, there was an increase of about JPY 10 billion. So were there any other factors that can explain about this, like a dividend from Vale or a dividend from copper business? I'm -- have looked at the past quarterly changes. And are we supposed to just look at the market price changes going forward to see your business results? Or the dividend from Vale or dividend from copper could also have an impact in the fluctuations in your profits. So the past changes in the factors, how they have affected your business results, can you give us a recap so that I can predict going forward?
Thank you for the questions. CFO Uchida will answer those questions.
First, for the first quarter, trading business, the steel products and Chemicals and food, the factors are different from segment to segment slightly, but there is the strong pent-up demand that may have manifested itself tentatively. But there was some supply restriction seen, so there was a high volatility that we've seen. And with the higher volatility, then the margin could also go up, and we have been able to capture this in our trading successfully. It's very difficult to answer your question of whether this will be sustainable. The business environment, how the current business environment is expected to continue, that's the key, but so far, we have been looking at the financial results and picking up the information. And so far, we don't see that sort of information for the short term at least. There are weather factors or climate factors or geopolitical factors. Or global supply chain could be changed into regional ones, so we are looking at various possibilities and giving some thoughts. I can't say this is the clear factor or something is a clear factor, but there could be some structural changes compared to the past. This is just a simple personal view, but this is what I can say. As for the metal -- Mineral & Metal Resources, the price of iron ore remains a big factor. And if you look at the sensitivity of iron ore, as for the dividend from Vale, that is not included in a sensitivity analysis. And dividend policy of Vale is that you exclude CapEx from the EBITDA. And then 30% of the remaining amount is distributed as a dividend, but for the short term, because of the market price increase, there is -- has been a rich cash flow in Vale. And they have expressed more dividends to be distributed. And this could be a fluctuation factor. And if you look back at the past performance, there was a [ tailing damn ] instant. And there was a period when there was no dividend. So you have to take that into account. And as for the coking coal and copper, if you look at the sensitivity and also difference from our assumption, the -- they are not that large, relatively speaking, compared to the iron ore. So there are -- is not that much of a factor, but we have to closely look at the prices of coking coal and copper price and linkage with these prices. I can't think of any special factors that I am aware of other than that. Thank you.
Thank you very much. We would like to take the next question.
I have one question. First, about iron ore, the upward revision of JPY 160 billion. Majority is from iron ore. And of course, sensitivity is not included for Vale, but you have given us an iron ore assumption price, so what was the difference from the original forecast? What major change, the forecast? And what is your perspectives going forward? Can you give us the updated information, please?
When it comes to iron ore, the assumption, it is not disclosed. And it's very difficult to answer the specifics. I'm sorry about that, but we have not really changed the assumption in a major way. At the beginning of the year, at the explanation we have given, in the first quarter, the iron ore price, there have been quite a difference from our original assumption or the normal level. And the "beginning of the year" forecast, I believe, is going to uphold. In other words, our prices will continue to decline towards the end of the year. But in the first quarter, we had seen a big increase. And in the past months, it has been relaxed, and we believe that trend have changed. However, in other words, we have not changed our outlook for the future, so we expect the prices will normalize going forward. However, in the past 3 months, we have seen an upward hike. And we believe that has been a phasing phenomenon that is going on. And as for the assumption. The strong prices that we are seeing currently, whether because of changes in the situation, they have -- continuing, but our assumption has not changed. But we believe that our assumption at the beginning of year is now being delayed by 3 months.
When you talked about iron ore, you believe that it is going to go down gradually going forward. And you have not changed that outlook, but in the first quarter, it was more than [ $200 ]. So how -- by how much it is going to go down. Do you think the pace of decline will be gradual? Or is it going to be stronger than what you have expected?
Of course, looking at the institutions announcing their forecasts of the market prices, I think that liquidity is quite lax. So we have to look at what our forecast of the future market is going to bring. However, we believe that it will normalize accordingly. You may think that we are very conservative, but we believe that -- towards the end of March next year, we believe that it is going to gradually go down to the normal levels.
And I'd like to ask a follow-up question on Energy, the JPY 20 billion revision for Energy. I believe the majority will come from increase in oil prices, but you said that gas price is assumed to go up as well. Is it being included in this revision?
Gas is also included in revision. Thank you.
Thank you. Let us move on to the next question.
I have 2 questions. First of all -- but it may not be appropriate to ask this question at this moment, but for the next fiscal year, compared to your initial plan, non-resource is expected to increase profits. And then you will have the overall increase in profits, but from this fiscal year to next fiscal year, have you not changed that forecast? Or the profit increase factors may have moved -- been moved up in the fiscal year, so you don't -- you are not supposed to maintain that forecast for the next fiscal year. Is that what you're saying? That's my first question. And as for second question. As CFO, what are the concerns that you have? What are the factors? Is it COVID-19 or global economy? If there is any specific concern that you might have, can you share that with us?
Thank you for the questions. CFO Uchida will answer those questions.
At the beginning of the fiscal year, as for the March 2023 forecast, there is no major change that is necessary. That's our understanding. As for the market prices, there is a fluctuation and we will be affected, but as you said, in the non-resources area there's a steady growth that will be incorporated. And we would like to achieve that. And in the market prices, we have reviewed our assumptions to do this upward revision. And if you look at the progress from the full year -- maybe at the interim report, we can take a relook at that. So we don't need to change the forecast for the next fiscal year. So what was the next question, the second question -- the concern. Well, in the near term, in the Asian region there's a re-expansion of COVID-19, and so as the -- in the U.S. And this could affect the economic recovery. What would be the impact? That is some things that -- of great concern. And if you look at the business environment and sentiment, to what extent will it be continued? That is one of the issues, big issues. And there is heightened volatility, and commodity prices are going up. And on one side, in a project there could be increase in costs because of that. In EPC and in projects, the cost management should be done, and also commodity prices. Well, in the near term, there were some things that have softened in the prices, but this could lead to counterparty risks. And there is such concern internally because we -- and so we are just cautioning the people in the company. So in terms of the short-term business performance for this fiscal year, those are the concerns, but for the mid- to long term, if you have an overall view: In ESG trend, the business portfolio of our company, how we should change that portfolio, that is one of the major challenge. And there are various [ social needs ] that are undergoing changes. And in response to that, how we can cope with that, that is expected to continue to be a challenge for us. Thank you.
Thank you very much. We'd like to take the next question.
Can you hear me?
Yes, we can hear you. Please go ahead.
When it comes to Mineral & Metal Resources and Energy, the changes in the market have been shown in the waterfall chart provided. So the cost is not a major factor here, but going forward, Vale will recover. And when it comes to volume, of course, the copper and also reserves and production, what are the impact coming from them? Or is there any concerns on the costs side? So can you talk about the impact on the business, please? And you talked about COVID-19 impact. And there are positives and negatives, but currently, Indonesia and Thailand, they are seeing expansion of COVID-19. What are the areas in which you are seeing impact from those? Is there any areas that you are very concerned about when it comes to COVID risks, please?
Thank you very much. I would like to answer the first question, and the second question will be answered by Uchida. The first question, about Mineral & Metal Resources and other factors that is not related to market. The negative factors include iron ore, and that is cost related. As the market increase, the sales commission is going to increase as well. And of course, the production volume: [ Robe River ], because of flooding and heavy rain, it was impacted. And of course, some construction work, that was needed, and that led to a decline. And when it comes to the cost, in the first quarter, it was about negative JPY 4 billion. And for volume for iron ore, it was minus or negative JPY 2 billion. I think these were the factors. When it comes to coal or copper, in the first quarter, there were no major factors. Uchida will answer your second question.
Yes. When it comes to COVID-19 impact, we are seeing increasing cases in Asia, and there are some -- several serious situations that we are seeing. And the Japanese personnel who were working in those areas have been coming back home. And we have to, of course, secure the safety of our personnel, but when it comes to businesses and operations, there are no trends that are negatively impacting our businesses. Of course, we have to monitor the impact on our business going forward, but remote work operation is enforced since last year. And of course, when it comes to recovery, especially in demand, North America and China were the centers of recovery. So Southeast Asia and in Asia, there has been diminishing demand, but they are not of major concerns. But we will monitor the situations going forward. Thank you very much. Did that answer your question?
Yes.
If there are no questions, we'd like to close the Q&A session, and that concludes the briefing. And this will be webcasted in IR archive of the website of the company, and you can get access at any time you want. And this concludes the conference call. Thank you very much for your attendance.