Mitsubishi Corp

TSE:8058

Earnings Call Transcript 2020-Q1

[Kazuyuki Masu, executive]

Hello. I am Kazuyuki Masu, CFO. Thank you for coming to our financial results briefing for fiscal 2019 first quarter. First, I will give an overview, and then Corporate Accounting Department General Manager, Yuzo Nouchi, will add some more details.

Please turn your attention to the center of the screen. I will begin with Page 1 of the presentation materials titled, Results for the Three Months Ended June 2019. First, consolidated net income for the first quarter came to JPY 161.2 billion, down JPY 43.2 billion year-on-year. Please look at year-over-year fluctuation on the lower left of the page and the graph to the right. In the business-related sector, net income fell JPY 24.4 billion mainly due to lower equity earnings in the automotive-related business, the petroleum and the chemicals and the salmon farming business.

In the market-related sector, net income fell JPY 14.2 billion mainly due to rebound from one-off gains in the ship business in the previous year, increased production costs in the Australian metallurgical coal business and decreased trading profit due to the disposal of the Australian thermal coal business.

Looking at the progress against the forecast for the year, we reached 27% of the forecast JPY 600 billion in net income. This was slightly above the benchmark of 25%, and on sum, was almost right on pace. In the market-related sector, we reached 30% of the fiscal year forecast due to strong sales prices and higher sales volume in the Australian metallurgical coal business as well as the concentration of profit in fiscal 2019 first quarter in the Australian metallurgical coal business and North American shale gas business. However, progress came to only 24% in the business-related sector due to weak performance in the automotive-related business and salmon farming business. Amid growing uncertainty in the global economy and increasingly challenging business environment, we cannot be overly optimistic towards the achievement of our full year forecast. This concludes my general overview. Next, Corporate Accounting Department General Manager, Mr. Nouchi, will give more details mainly on the results by segment.

[Yuzo Nouchi, executive]

Hello. I am Yuzo Nouchi, General Manager of the Corporate Accounting Department. I would like to go into a little more details. First, results by segment. Please turn to Page 2. I will focus on the main factors, positive and negative, affecting earnings.

First, in natural gas, net income increased JPY 3.6 billion from JPY 24.9 billion in the first quarter last year to JPY 28.5 billion mainly due to increases in equity earnings in the LNG-related business and the shale gas business.

Stepping down to in petroleum and chemicals. Net income decreased JPY 6.4 billion from JPY 11 billion last year to JPY 4.6 billion mainly due to decreased trading profits in the overseas petroleum business and decreased equity earnings in the petrochemical business.

In mineral resources, net income decreased JPY 13.5 billion from JPY 72.5 billion last year to JPY 59 billion mainly due to increased production costs in the Australian metallurgical coal business, decreased trading profit due to the disposal of the Australian thermal coal business and decreased dividend income in the copper business.

In industrial infrastructure, net income decreased JPY 9.1 billion from JPY 14.4 billion last year to JPY 5.3 billion mainly due to rebound from the effect of deferred tax assets recorded in the ship business last year.

Moving to the top right of the page. In automotive and mobility, net income decreased JPY 8.2 billion from JPY 25.6 billion last year to JPY 17.4 billion. This was mainly due to decreased equity earnings from Mitsubishi Motors Corporation and the Asia automotive business.

In food industry, net income decreased JPY 5.3 billion from JPY 11.6 billion last year to JPY 6.3 billion mainly due to decreased equity earnings in the salmon farming business.

Next, please turn to Page 3. Next, I would like to explain our cash flows. Before I get into results, I need to explain the impact of a revision in the IFRS standard for lease accounting. Due to this revision, the payments of lease liabilities for operating leases are no longer included in operating cash flows. Specifically, underlying operating cash flows, which are operating cash flows excluding exchanges in working capital, now include repayments of lease liabilities. We define adjusted free cash flows as underlying operating cash flows, less cash flows used in investing.

Although the method of calculation has changed, as before, underlying operating cash flows show the earnings power of our primary businesses, while adjusted free cash flows show the cash flows that fund future investments and shareholder returns.

I will now explain our cash flows in the first quarter. Please look at the cash flows for the 3 months ended June 2019 on the right side of the bar graph. Underlying operating cash flows, shown in gray, were an inflow of JPY 213.9 billion, while investing cash flows in orange were an outflow of JPY 44.8 billion. The sum of these adjusted free cash flows was therefore an inflow of JPY 169.1 billion.

Investing cash flows are broken down in the orange section of the table at the middle right. Outflows came to JPY 169.9 billion (sic) [ 176.9 billion ], including loans to other corporations and investment in the Australian metallurgical coal business and convenience store business. Inflows totaled JPY 132.1 billion, including the sale of equity interest in the overseas power business and of listed stocks. This resulted in a net outflow of JPY 44.8 billion. Page 4 gives a summary of market condition assumptions for reference. So please take a look when you have a chance. This concludes my explanation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]