Earnings Transcript for 6503.T - Q1 Fiscal Year 2025

Unidentified Company Representative: Now we would like to start Mitsubishi Electric Corporation's Consolidated Financial Results Briefing for Fiscal 2025. Thank you very much for joining today out of your very busy schedule. We appreciate your attendance. I am your moderator today. I am Yamazaki from Corporate Communications. Financial results, Tianjin report and the presentation materials are posted in the News Release site as well as the Financial Results site of our website. We'll be using the presentation materials today, therefore, please make sure you download the materials from our website. Now I'd like to explain the floor of today's briefing session. First, CFO, Masuda, will give an explanation of the financial results and then that will be followed by a Q&A session. The explanation part will take around 15 minutes and questions will be taken first from the members of the media, followed by investors and analysts. We plan to end this session at around 5

Kuniaki Masuda: This is Masuda of Mitsubishi Electric. Thank you very much for joining our results briefing. Now I will start explaining consolidated results for the first quarter of fiscal 2025. Please turn to Page 3. I will begin with the key points of the financial results. Revenue in the first quarter of fiscal 2025 was ¥1,286.4 billion, marking the fourth consecutive year of record high revenue for the first quarter, primarily due to an increase in infrastructure segment and the impact of the weaker yen. Operating profit remained at the same level with the previous fiscal year, mainly due to the impact of a decrease in volume in the profitable factory automation systems business and the impact of the rising material and other procurement costs. As for the full year forecast for the fiscal 2025, revenue forecast is revised upward by ¥90 billion from the previous forecast, up to ¥5,390 billion, partly due to revision to the foreign exchange rate assumptions, while incorporating the impact of the delay in the market recovery for the factory automation systems business. Operating profit forecast remains unchanged from the previous forecast at ¥400 billion. We will steadily implement initiatives to achieve earnings targets by continuing our efforts to improve profitability and efficiency in each business, including improvements in product prices to reflect the impact of rising procurement costs. Please turn to Page 5. This page shows the group's financial results for the first quarter. Revenue was ¥1,286.4 billion, up ¥66.1 billion year-on-year due to the impact of the weaker yen. Operating profit, on the other hand, decreased by ¥2.3 billion year-on-year down to ¥58.6 billion despite the positive impact of the weaker yen and the operating profit ratio decreased by 0.4 points year-on-year to 4.6%. Please turn to Page 6. The change in revenue and operating profit from the previous fiscal year just explained are shown in a waterfall chart. The impact of the exchange rate fluctuations led to an increase in the revenue of ¥73 billion and an increase in profit of ¥20 billion. Operating profit decreased more than the decrease in actual volume excluding the impact of the exchange rate fluctuation, mainly due to the deterioration in the product mix as a result of the decrease in revenue from the profitable factory automation systems business, as well as the worsening in material procurement costs despite the positive impact from the exchange rate and continued efforts for price improvement. We will strengthen cost control from Q2 onwards also taking into account the delay in market recovery. Please turn to Page 7. Next, I will explain the key points of the consolidated statement of profit or loss. The cost ratio was 71%, an improvement of 0.1 point year-on-year from 71.1% as a result of improvement due to foreign exchange rates and price which was offset by product mix and costs. SG&A increased by ¥25.5 billion year-on-year due mainly to increase the expenditures for personnel and R&D expenses as well as ¥12.4 billion impact from the weaker yen. Please turn to Page 8. I will move on to the consolidated statements of financial position. First, assets increased by ¥77.7 billion compared to the end of the previous fiscal year. Inventories increased by ¥55.1 billion. Of that, the impact of the exchange rate fluctuation was ¥38.6 billion. The balance increased in individual production businesses as a result of progress of job orders while in mass production businesses the actual balance including the impact of the exchange rate fluctuation decreased from the end of the previous fiscal year, mainly due to reduced inventories in air conditioning systems and home products business. On a year-on-year basis, the inventory balance decreased by ¥24.7 billion and excluding an increase of ¥59.3 billion due to the impact of exchange rate fluctuation, the balance decreased by ¥84 billion. And we are making steady progress in reducing inventories to an appropriate level. The total equity increased by ¥75.4 billion of which Mitsubishi Electric Corporation stockholders equity increased by ¥69.7 billion compared to the end of the fiscal year 2024 to ¥3,807.2 billion and due the ratio of Mitsubishi Electric Corporation stockholders equity to total assets increased by 0.8 points from the end of the fiscal 2024 to 61.4% due to unrealized gain of ¥82.3 billion from currency exchange rate on the net assets of overseas subsidiaries among other factors, as well as to the recording of ¥49.1 billion for the net profit attributable to Mitsubishi Electric Corporation stockholders despite a decrease of ¥62.97 billion due to payment of dividends. Cash flow from operating activities increased by ¥92.6 billion year-on-year to ¥183.8 billion, mainly due to an increase in net profit attributable to Mitsubishi Electric Corporation stockholders and ¥61.5 billion decrease in expenditure for inventories and ¥43.3 billion decrease in trade receivables. Cash flow from investing activities was an outflow of ¥63.7 billion, an increase in outflow of ¥22.8 billion year-on-year, primarily due to ¥11.3 billion increase in acquisition, investment securities and others of affiliate companies and ¥8.8 billion of increase in acquisition, property, plant and equipment. As a result, free cash flow was an inflow of ¥128.1 billion, an increase of ¥69.8 billion year-on-year. Page 10 from here I will explain revenue operating profit by business segment. The infrastructure and semiconductor device business segments both saw an increase in revenue and profit year-on-year, while the life business segment saw an increase in revenue and a decrease in profit, and the industry and mobility business segment saw a decrease in both revenue and profit. From next page I will explain details of each segment. Please return to Page 19 for more details. Page 11 please, first the infrastructure segment. In the public use utility systems business, the overseas UPS business and the transportation business performed well and orders, revenue and operating profit all increased compared to the same period last year. In the energy systems business, demand for power stabilization solutions due to the expansion of capital investment by domestic power companies and the expansion of renewable energy both domestically and overseas remained strong, and orders, revenue and operating profit all increased year-on-year. In the defense and space systems business, both revenue and operating profit increased year-on-year. Orders received decreased year-on-year due to the impact of a large defense system project in the same period of last year, but the market is strong and we expect to see a steady increase in orders in the future. Page 12, industry and mobility segment. In the FA systems business, demand for lithium ion batteries and other decarbonization related fuels continues to stagnate, but demand for smartphones and machine tools in China is increasing and orders received exceeded the same period of last year. However, there has not yet been a strong recovery and both revenue and operating profit declined year-on-year. In the automotive equipment business, the number of new cars was strong at the same level year-on-year in almost all regions except Japan, and the effect of price improvement was particularly large compared to the same period of last year with both revenue and operating profit increased year-on-year. Page 13, life segment. In the building systems business, demand recovery continued in various regions, both domestically and overseas, and orders, revenue and operating profit all saw an increase year-on-year. In the air conditioning systems and home products business, demand for home air conditioners in particular continued to be sluggish in Europe, while demand was strong in Japan and other regions, mainly in Asia except China, and revenue exceeded the same period last year. Also, revenue increased, operating profit decreased year-on-year due to sluggish demand in western countries, especially in Europe, and the impact of rising material prices. Please see Page 14. In the business platform segment, demand for system updates and DX introduction related items remained strong and orders, revenue and operating profit all exceeded the same period last year. In the semiconductor and device segment, orders received in the same period of previous year were high, including orders for specific projects, so orders received this year were lower than the previous year. However, revenue and operating profit were higher year-on-year, supported by strong demand. Page 15, this page shows revenue by location of customers. Revenue in overseas markets increased by ¥45.2 billion year-on-year to 107% level, or ¥730.1 billion, despite decreasing demand in some regions and fields, a major driver was the weaker yen. Revenue in Japan increased to 104% year-on-year, but overseas revenue grew even more than that, so overseas revenue accounted for 56.8% of consolidated revenue, a record high for the third consecutive year for the first quarter. Page 17, this is a forecast for fiscal 2025. We have revised our revenue forecast to ¥5,390 billion, an upward revision of ¥90 billion from the previous forecast, and our operating profit is expected to be ¥400 billion as previously announced. In light of the yen's depreciation, which was greater than expected, we have revised our exchange rate assumptions, which will boost both revenue and operating profit while revising our market outlook for FA systems. In the FA systems business, where we had expected demand to recover from the third quarter, we have revised the timing of the overall recovery in demand to the fourth quarter, about three months later than our previous forecast in light of the current situation although demand has recovered in some areas. The revenue and operating profit forecast by segment disclosed in the supplementary information on Page 20, basically compared to the previous forecast, we have revised our forecast to show a decrease in revenue and profit in the FA systems business and an increase in revenue and profit in many other sub-segments. That's all from me.

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